Singapore Post Ltd - Maybank Kim Eng 2016-06-22: COO resigned, rival steps up

Singapore Post Ltd - Maybank Kim Eng 2016-06-22: COO resigned, rival steps up More resignation and rising competition SINGAPORE POST LIMITED S08.SI 

Singapore Post Ltd (SPOST SP) - COO resigned, rival steps up 


More resignation and rising competition

  • SingPost announced the resignation of COO Dr Sascha Hower on 21 Jun 2016 to pursue overseas opportunities. He will be leaving in Aug. 
  • In less than a year, 3 senior executives have resigned, starting with the CFO in Jul 2015 and the CEO in Dec 2015. Shortly after, the Chairman and 3 more directors also stepped down. 
  • To make matters worse, competition in Singapore could intensify with rivals turning more aggressive and the government levelling the playing field. 
  • Maintain contrarian SELL and DCF-based TP of SGD1.29 (WACC 11.3%, LTG 1.0%).


Transition could delay Alibaba deal & integration

  • The departure of Dr Sascha, who is also CEO of Quantium Solutions, SingPost's primary logistics subsidiary in the region, could prompt Alibaba to re-evaluate its proposed acquisition of a 34% stake in Quantium Solutions as part of its JV with SingPost. 
  • Moving forward, there could be further negative newsflow from on-going investigations by ACRA into breaches of the Companies. The investigations started in May. 
  • Transition of the board and top-management could divert employees' attention from the core business and integration of massive M&As done by the previous board and management.


Competitor stepping up, with government’s support

  • We highlighted in our 13 June 2016 initiation report that logistics is a highly competitive industry with low barriers to entry. However, the Singapore logistics scene is an unoptimised one, especially when it comes to last-mile connections. 
  • Japan-based Yamato, which has made good progress in its Asia expansion, is a regional player worth watching. On 20 June, Yamato said that it exploring setting up an open locker system in Singapore to facilitate parcel deliveries to consumers. It could tie up with other players and if the concept is successful in Singapore, it might replicate the model in other markets. Yamato has already started the 7- connect Locker service last year, where consumers can choose to receive their parcels at 7-11 outlets nationwide. 
  • The government is also seeking to liberate the industry by introducing a nationwide common parcel locker system. SingPost's domination in this segment, with 140 parcel lockers, could be eroded.



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/ 2016-06-22
OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 1.29 Same 1.29


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