Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2016-10-28: Green Light for Alibaba Deals

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SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - Green Light for Alibaba Deals

JV completed and second investment approved 

• SingPost has completed its joint venture agreement with Alibaba (BABA US; CP 102.78; BUY) that provides a 34% stake of its subsidiary, Quantium Solutions, to the latter. 
• Also, it has obtained regulatory approval for Alibaba to raise its stake in SingPost to 14.4% at SGD1.74/sh. The placement is expected to be completed by 28 Feb 2017. There were no changes to the original terms. 
• These developments should remove the overhang on the stock and potentially enable SingPost to capture more ecommerce logistics businesses from Alibaba. 
• We have not adjusted our forecasts for the share dilution and cash infusion pending clarification of more details. Maintain BUY and TP of SGD1.77 (WACC 8.7%, LTG 1%).

Potential overhang removed 

• With the conclusion of the JV, clarity of the placement timeline and terms of the deals, the overhang on the share price should be lifted as the markets were concerned about a further delay or cancellation of the deal. 
• Also, concerns regarding a deteriorating business relationship between SingPost and Alibaba should now be addressed as well.

Terms intact; SGD273m proceeds to fund growth 

• The original terms and pricing remain unchanged. Alibaba will be investing a total of SGD273m into SingPost for both deals: 
  1. SGD86m for a 34% stake in Quantium; and 
  2. SGD187m or SGD1.74/sh to raise its stake in SingPost to 14.4%, up from 10.2%. 
• The proceeds could help SingPost to expand its core business and pare down debt.

Catalyst from more Alibaba and Lazada volume 

• The deals should further strengthen the commitment between both parties and potentially enable SingPost to capture more logistics businesses from Alibaba’s and Lazada’s online platform. 
• The JV focuses on strengthening Quantium’s e-commerce logistics network and building scale for improved profitability. 
• Quantium currently has a presence in 11 markets, providing a full suite of end-to-end e-commerce solutions that include warehousing, fulfilment, and last-mile delivery.

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/ 2016-10-28

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 1.770 Same 1.770