Singapore Post Ltd - CIMB Research 2015-11-03: Entering phase 3.0

Singapore Post Ltd - CIMB Research 2015-11-03: Entering phase 3.0 Singpost SINGAPORE POST LIMITED S08.SI 

Singapore Post Ltd - Entering phase 3.0 

  • With SingPost 3.0, the focus will be on realising synergies from M&As, going global with e-commerce logistics, leveraging partnerships and unlocking asset value. 
  • We expect stronger earnings growth in the medium term as investments taper off and provide less of an earnings drag. 
  • We revise FY16-18 net profit by 2-4% to account for changes in rental income, lower depreciation and recently completed acquisitions. 
  • Maintain Add, with slightly lower TP as we raise capex assumptions. 

SingPost 3.0 

  • At the post-results briefing, management shared its vision of SingPost 3.0 – an accelerated growth phase in FY16-20 where its focus will be on growing the freight and e-commerce logistics business globally, enhancing productivity, leveraging partnerships, unlocking full asset value and widening its customer-centric go-to-market products. 
  • Its goal is to become a true MNC by 2020. 

Moving on from the investment phase to post-merger integration 

  • Since FY12, SPOST has been actively involved in M&As to build up its e-commerce logistics network, but management shared that its focus will shift to realising synergies from its acquisitions, i.e. post-merger integration. 
  • So far, acquisitions have contributed to significant revenue growth, but earnings have yet to flow through given continued investments. 
  • We expect earnings momentum to improve in the medium-term as SPOST reaches the tail end of the investment phase. 

Potential synergies 

  • We think that the acquisitions of TradeGlobal and Jagged Peak present an opportunity for SPOST to gain critical mass in the monobrand business, by helping US brands set up e-commerce operations in ASEAN, Australia and New Zealand. SPOST can also capitalise on TradeGlobal and Jagged Peak’s partnerships in Europe to make inroads to the European monobrand market to complete its global offering. 

SPC retail mall redevelopment could add 3-5% upside to net profit 

  • Redevelopment works have commenced for the retail mall at Singapore Post Centre (SPC), which will result in loss of rental income (c.20% of total rental income) from 3QFY16 to 1QFY18. However, retail GFA will almost double post-redevelopment, which should boost earnings starting 2QFY18. 
  • Assuming 
    1.  additional c.72,600 sq ft NLA, 
    2.  S$10-18 psf rent, and 
    3.  NPI margin of 70%, 
    we factor in additional S$9m-16m in rental income and S$6m-11m net profit per year (3-5% upside). 

Maintain Add on stronger medium-term outlook 

  • We maintain our Add call on SPOST, with a slightly lower DCF-based target price of S$2.04 (WACC: 7%) as we raise capex assumptions. 
  • While earnings momentum seems to be finally kicking in over the medium term, we acknowledge that near-term earnings may still come under pressure as SPOST completes the tail end of investments (targeting 200 POPStations from 120 currently, eCommerce Logistics Hub and SPC). The stock offers 4% dividend yield while waiting for earnings growth to come.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-11-03
CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.04 Down 2.07