Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2017-03-26: Holding the fort

Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2017-03-26: Holding the fort SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - Holding the fort


Focus points: Trade Global, Alibaba and competition 

  • We hosted SingPost to our Invest ASEAN Singapore Conference on 22 Mar 2017. Key discussion points included: 
    1. competitive landscape and differentiation plans; 
    2. relationship with Alibaba and potential collaborations; 
    3. future plans for loss-making Trade Global
  • Also, major decisions are likely to be placed on hold before the new CEO joins in Jun 2017. 
  • Maintain HOLD with DCF-TP of SGD1.34 (WACC 7.6%; LTG 1%).


Competitive landscape and differentiation plans 

  • To differentiate itself in the competitive logistics industry, SingPost targets offering a more extensive hybrid solution to its clients that will enable selection between postal or commercial services across different markets. 
  • Management are also mindful of rising competition from postal players in neighbouring countries and a tendency by customers to rely on services of lower costs countries. A good example is the recent plan of Alibaba to set up its regional e-commerce hub in Malaysia. 
  • To remain relevant despite not being a low cost provider, SingPost targets to: 
    1. offer higher quality services in terms of delivery speed and accuracy; 
    2. leverage on better connectivity and efficiency of Singapore’s airport; and 
    3. target mono brands and market places that have operations in Singapore for its new e-commerce logistics hub.


Relationship with Alibaba remains positive 

  • SingPost’s relationship remains good with Alibaba, and both parties are planning for more collaboration after the recent capital injection.
  • SingPost remains Alibaba’s second preferred partner, after China Post, which takes up around 80% of total overseas volume.


Improvement plans for Trade Global 

  • Loss making US e-commerce business, Trade Global is going through restructuring under the new CEO Paul Demirdjian. He has a good track record in building up Jagged Peak and running an asset light business model. 
  • Possible improvements for Trade Global include more automation to reduce reliance on labour and charging discriminatory pricing to customers based on seasonality and volume. The amount of asset impairment will likely be determined in 4Q17 results.


Swing Factors


Upside

  • Faster than expected turnaround of TradeGlobal, a newly acquired e-commerce enabler for fashion and lifestyle.
  • Higher than expected revenue growth in e-commerce logistics, from more customers and services.
  • Higher than expected margins for e-commerce logistics, from economies of scale and operating leverage.

Downside

  • Inability to resolve corporate-governance conundrum, including board’s independence and disclosures.
  • Failure to extract synergies and integrate its largest acquisition, TradeGlobal.
  • Worse-than-expected deterioration in mail business before e-commerce logistics compensates.




John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-03-26
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.340 Same 1.340



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