Singapore Post Ltd - CIMB Research 2016-03-11: It gets busier at the checkout line

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Singpost SINGAPORE POST LIMITED S08.SI 

Singapore Post Ltd - It gets busier at the checkout line 

• We think SPOST’s share price has been overly punished and deserves to trade up to higher valuations on earnings delivery in ecommerce logistics. 
• We also address concerns on its M&As, declining mail volumes, its net debt position and competition from startups. We think these are overplayed. 
• Catalysts are starting to flow through from: 
  1. new collaborations with Alibaba, 
  2. expansion of monobrands, and 
  3. operational efficiency on back-end integration. 
• Maintain Add. SPOST offers an attractive yield of 4.4%. 

Expansion of monobrands into Asia Pacific 

• With the acquisitions of TradeGlobal and Jagged Peak, SPOST now serves more than 100 monobrand customers (15 previously). 
• According to SP eCommerce, 48% of US monobrands are still selling to Asia remotely from the US; we expect growth to be driven by bringing these brands into Asia Pacific, and SPOST is already seeing traction there. 
• TradeGlobal’s clients are mostly well-known fashion brands, and Asia & Australasia is where clothing demand and ecommerce are set to see the fastest growth. 

More Alibaba volumes to come 

• SPOST now handles Alibaba’s outbound volumes from China to Singapore, Indonesia and Brazil; this resulted in an 18.5% CAGR in international mail revenue in FY12-FY15. 
• The upcoming JV opens doors for SPOST to collaborate with Alibaba in new markets, especially for AliExpress shipments. We think the US is a potential market, where SPOST now has more than 50 fulfilment centres. Jack Ma’s ambitious target to grow Alibaba’s international revenue contribution to 50% (now 8%) will also benefit the JV. 

We expect 48% CAGR in ecommerce revenue in FY15-17 

• In the past, much of SPOST’s growth was fuelled by M&As. We estimate it paid 23-25x P/E for 12-25% revenue growth (1-8% ex-M&As) in FY13-15. 
• Near term, SPOST will still see growth from the consolidation of TradeGlobal and Jagged Peak, but beyond that we expect organic growth from stronger Alibaba volumes, the Quantium JV and synergies. 
• We think SPOST will see 48% CAGR in ecommerce-related revenue in FY15-17 (FY15: 19% yoy), and ecommerce could reach 43% of total revenue in FY17 (FY15: 28%). 

Go big or go home 

• Even as notable startups like aCommerce, Anchanto, Ninja Van and Zyllem enter the ecommerce logistics space, we think SPOST still has a first-mover advantage with the backing of a low-cost postal network. 
• Also, these startups are relatively small – SPOST handles 231x the GMV of Anchanto and 8x the parcels/day of Ninja Van. 
• Building critical mass to lower unit cost is key; as such, we expect SPOST to see margin expansion with volume growth and rationalisation of its cost base. We expect margin to bottom in FY17. 

Maintain Add 

• Our positive view is premised on visible catalysts ahead: 
  1. volume growth from Alibaba in international mail and Quantium Solutions, 
  2. synergies from TradeGlobal and Jagged Peak by helping their customers expand into Asia Pacific, and 
  3. margin expansion from volume growth and back-end integration. 
• We have seen all three come through in 3QFY16, and expect the momentum to continue. 
• SPOST also offers an attractive 4.4% yield. 
• We maintain our Add call and DCF-based (7% WACC) target price (S$1.89).

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2016-03-11

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 1.89 Same 1.89