Singapore Post Ltd (SPOST SP) - Maybank Kim Eng 2017-07-21: Will Take Time To Deliver

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SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - Will Take Time To Deliver

AGM points: TradeGlobal, new strategy, integration 

• Key takeaways from SingPost’s AGM: 
  1. management is implementing a turnaround plan for TradeGlobal, but it will take time as there is a lot to be done; 
  2. the new CEO, Paul Coutts will update the business strategy in the coming few weeks; 
  3. integration of acquired businesses and all assets will be the first priority. 
• While management is positive about the long-term potential of SingPost, the transformation journey could take time. 
• Maintain HOLD with DCF-based Target Price of SGD1.29 (WACC 7.6%).

Implementing a turnaround plan for TradeGlobal 

• The turnaround plan for TradeGlobal involves using warehouse automation to address labour issues, tackling structural issues facing the business and adopting best practices from Jagged Peak’s technology driven business model. 
• Management expects a lot needs to be done and it will take time to turn things around. However, it is committed on the turnaround plan and recovering as much value as possible.

New CEO will update business strategy 

• One of the main priorities of the new CEO is to further define and determine the strategy for the future. He concurs that the earlier strategic vision of being a leader in mail and e-commerce logistics is even more valid today given the rapid expansion of the global ecommerce market. However, he recognises that the industry landscape is changing, citing the new world and challenges from: 
  1. competition from new tech disruptors; 
  2. future of logistics to be driven by big data and artificial intelligence; and 
  3. the importance of innovation.

Integration of investments remain key priority 

• The key priority of the new CEO is to integrate all investments to create a true network across markets, products and geographies. The term “One SingPost” has been cited for the integration. He highlighted that cross-border e-commerce value is expected to grow and ASEAN will be a key driver of that growth.

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 independence of the board and inadequate disclosure.
• 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/ 2017-07-21

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 1.29 Same 1.290