OCBC Investment Research 2015-07-09: Singapore Post - Alibaba to up investment in SingPost. Maintain BUY.

Singapore Post: Alibaba to up investment in SingPost 

  • Alibaba invests in Quantium Solutions 
  • Also buys 5% more of SingPost 
  • Look forward to greater collaboration 

Alibaba to invest up to S$92m in Quantium Solutions 

  • Singapore Post (SingPost) announced that Alibaba Group Holding will invest up to ~S$92m in Quantium Solutions International (QSI) for a 34% stake, with SingPost holding the remaining 66%. 
  • QSI is currently a wholly owned subsidiary of SingPost providing leading end-to-end ecommerce logistics and fulfilment services across the Asia Pacific region. Its network spans more than 10 countries and it offers e-commerce logistics solutions and warehousing across Asia Pacific. 
  • However, with the investment by Alibaba, it will become a JV and it will ramp up the development of e-commerce logistics infrastructure and services. 

Will also purchase another 5% stake in SingPost 

  • At the same time, Alibaba will purchase 107.6m new shares amounting to a 5% stake in SingPost for S$187.1m such that its deemed interest on a fully diluted basis in SingPost will rise from 10.23% to 14.51%. 
  • The subscription price is S$1.74, which is at an 8% discount to Tuesday’s closing price. 
  • This acquisition of additional equity is subject to IDA and SingPost’s shareholder approvals. 

Rationale for the moves 

  • According to SingPost, the initiatives will allow QSI to accelerate the build-up of ecommerce logistics infrastructure and services, and will also provide a platform for both parties to strengthen the collaboration and realize synergies. 
  • This includes ecommerce warehousing, last mile delivery and other end-to-end ecommerce solutions. 
  • A joint strategic business development framework has also been set up. 

More details on collaboration with Alibaba 

  • When asked for more details, SingPost revealed that it will be the preferred partner for Alibaba’s foray in Indonesia and Brazil, as well as electronics products in Alibaba’s platform. 
  • Amongst the various initiatives they are pursuing, both parties are also looking to build warehouses in and outside of China. 
  • In SE Asia, though SingPost is not the only logistics partner with Alibaba, it aims to be a leading partner. 
  • Meanwhile we look forward to greater collaboration between SingPost and Alibaba for mutual benefit. 
  • Maintain BUY with S$2.19 fair value estimate on SingPost. 

(Carmen Lee)

Source: http://www.ocbcresearch.com/