Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2016-11-02: Site Visit of New Logistics Hub

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SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - Site Visit of New Logistics Hub

Enhanced capacity & efficiency to cater for growth 

• We attended a site visit hosted by SingPost to showcase the capability of its new regional eCommerce Logistics Hub. We walked out positive on the increased capacity and efficiency, which could offer greater value propositions to customers regionally. 
• Key takeaways: 
  1. SingPost can stay ahead of disruption by being more efficient, offering more flexibility and upskilling its people; 
  2. Strengthened collaboration with Alibaba provides a common platform to grow eCommerce logistics capability. 
• Maintain BUY and DCF-based TP of SGD1.77 (WACC 8.7%, LTG 1%).

Ample room to scale up and upgraded efficiency 

• With this new eCommerce logistics hub, SingPost has ample room to scale up and is able to handle peak season demand more efficiently. The facility is able to sort up to 100k parcels a day and is much higher than the previous capacity. 
• Efficiency will improve significantly as well, from integrated sorting, warehousing and delivery processing. Key upgrades from the old logistics hub include: 
  1. Having goods to go to the staff (Goods-to-Man Picking), instead of staff having to reach for the goods manually; 
  2. Consolidation into a single point location, as there is now enough space for warehousing, compared to storing inventories in multiple locations previously; 
  3. Located nearer to airport and more loading bay could help to handle international goods more efficiently.

More flexibility to customers and upskilling staff 

• Flexible offerings to customers will include enhancing product returns, more shipping options for heavier cargoes and optimising the selfcollection network. 
• SingPost also launched Centre of Innovation, to harness technology in developing new logistics and postal solutions. For its people, SingPost will continue to train them for the future, envisioning a programmer of driverless vehicles or a controller of robots.

Common growth platform with Alibaba 

• SingPost’s JV with Alibaba will be a common platform to enhance eCommerce logistics capabilities in ASEAN and Oceania. 
• Both parties will strengthen their eCommerce logistics network and invest to scale up.

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/ 2016-11-02

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