Singapore Post Ltd - CIMB Research 2015-10-15: Going global

SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd - Going global

Acquisition of 96.3% of TradeGlobal Holdings, Inc. for US$168.6m and 71.1% of Jagged Peak, Inc. for US$15.8m, both to be funded via internal cash.
These acquisitions will expand its end-to-end e-commerce logistics capabilities to the US and equip it with the software to provide omni-channel retail solutions.
Post-acquisition, SPOST will become a leading global end-to-end e-commerce logistics player, handling >100 monobrands and US$3bn in GMV.
We estimate 8-15% upside to our FY17 EBITDA forecast from the two acquisitions.

At US$168.6m (S$236m), the acquisition of TradeGlobal is the biggest SPOST has made to date. TradeGlobal is one of the top five end-to-end ecommerce players in the US based in Cincinnati, OH that services 50 leading brands in fashion, beauty and lifestyle (Tory Burch, Hugo Boss). While no financials were released, guidance is that it is loss-making but generating positive EBITDA and free cashflows, and the purchase price implies a cash flow multiple on par with peers’.

Jagged Peak is headquartered in Tampa, FL and provides cloud-based enterprise e-commerce software to support end-to-end e-commerce operations. It focuses on high-velocity consumer goods with clients such as Nestlé, Kimberly-Clark and LVMH. At US$15.8m for a 71.1% stake, we estimate that SPOST will pay 18.8x trailing 12-months (TTM) P/E and 7.1x EV/EBITDA which we view as reasonable.

With the two acquisitions, SPOST’s portfolio will expand from 15 monobrand clients to more than 100, of which > 60 are international fashion brands. It will also handle a total gross merchandise value (GMV) of > US$3bn. There are vast opportunities to help clients expand internationally – SPOST’s Asian clients are becoming increasingly global and want to expand to the US, while most of TradeGlobal’s clients lack online presence and the supporting fulfillment centres in ASEAN, Australia and New Zealand.

Both acquisition targets offer omni-channel SaaS technology which provides a one-stop order management solution across multiple retail channels. TradeGlobal’s expertise is in handling a large number of SKUs in a consolidated fulfillment centre, while Jagged Peak focuses on handling a few SKUs that have a high order rate (e.g. mobile phones). Access to both would equip SPOST with the capability to handle orders across multiple industries, especially apparel which is the fastest-growing segment globally.

We keep our estimates intact pending the completion of both acquisitions. Jagged Peak generated c.S$5.3m in TTM EBTIDA. Based on peers’ EV/EBITDA multiples of 7-15x, we estimate that TradeGlobal could contribute S$16m-35m to EBITDA. Together, this represents potential 8-15% upside to our FY17 EBITDA forecast. Even after the two acquisitions, we estimate that SPOST would still have net cash of S$71m.
We reiterate our Add call and DCF-based target price S$2.07, with M&A to spur expansion and growth.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-10-15

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