Synagie Corp Ltd - CGS-CIMB Research 2018-09-05: Automating E-commerce For Global FMCG Brands

Synagie Corp Ltd - CGS-CIMB Research 2018-09-05: Automating E-commerce For Global Fmcg Brands SYNAGIE CORPORATION LTD. SGX:V2Y

Synagie Corp Ltd - Automating E-commerce For Global FMCG Brands

  • Synagie is one of the fastest-growing providers of e-commerce services in Singapore. It offers one-stop services to global FMCG (fast-moving consumer goods) clients such as Kimberly-Clark. 
  • We expect Synagie to ride on robust e-commerce growth prospects; Frost & Sullivan projects online BBB (body, beauty and baby) industry in SEA to expand by 25.2% CAGR in 2017-22F. 
  • Revenue growth drivers for Synagie could come from its expansion in other product categories, beyond its core BBB segment and outside Singapore. 
  • Synagie currently trades below its IPO price of S$0.27 and at CY19F price-to-sales (P/S) ratio of 2.2x, a 60% discount to its global e-commerce peer average of 5.4x. 

One-stop shop for e-commerce services for FMCG brands

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  • Established in late 2014, home-grown Synagie now provides e-commerce services to more than 250 fast-moving consumer goods (FMCG) brands – mostly in the body, beauty and baby (BBB) sector. Its suite of services includes setting up a brand’s multi-channel online retail presence on popular marketplaces such as Lazada and Qoo10 and helping to manage its customers’ e-logistics and fulfillment processes via its Synagie Platform, a cloud-based e-commerce and fulfillment platform.
  • We initiate coverage on Synagie with an ADD call and target price of S$0.34. 

Creating a scalable ecosystem with Insurtech

  • Synagie acquired its profitable Insurtech subsidiary, 1Care Global, in Apr 2018 to enter the third-party administrator (TPA) business. This is Synagie’s third business segment, which would work synergistically with its other two segments – e-commerce and e- logistics.
  • Synagie’s Insurtech business could help Synagie expand into the computer, communication and consumer electronics (3C) segment, moving beyond its core BBB space and fits into its asset-light business model, which allows for rapid scalability.

Fastest-growing e-commerce start-up

  • Frost & Sullivan rates Synagie as one of the fastest-growing e-commerce start-ups in Southeast Asia, given its historical revenue CAGR of 551.8% over 2015-17. Although the group is currently loss-making, we project Synagie to deliver c.70.7% revenue CAGR over FY17-20F and achieve positive net profit in FY20F, benefiting from economies of scale.

Riding on robust e-commerce growth prospects in the region

  • According to Frost & Sullivan, the online BBB industry accounted for 13.3% of the e- commerce gross merchandise volume (GMV) in Southeast Asia in 2017 and is expected to grow by 25.2% CAGR over 2017-22F, underpinned by mass-market brands adopting a direct-to-consumer digital strategy comprising online sales channels and high turnover rate for BBB products.
  • We think other revenue growth drivers may come from Synagie’s expansion into other product categories beyond BBB and outside of Singapore.

Initiate with Add and target price of S$0.34

  • Given that Synagie is still in an early high-growth stage, we project that it would achieve normalised EBITDA of S$4.8m by end-FY23F. With its global peers trading at CY19F EV/EBITDA multiple of c.24x, we apply that multiple and a 10% WACC to our discounted FY23F EBITDA to derive a target price of S$0.34. This implies potential upside of 44.7% at FY19F P/S of 3.1x – c.43% discount to its global peers’ average of 5.4x.

Key risks and potential re-rating catalysts

  • Downside risks include prolonged net losses and cessation of relationships with key brand partners. Pote from faster-than-expected increase in profitability.

Colin TAN CGS-CIMB Research | 2018-09-05
SGX Stock Analyst Report ADD Initiate ADD 0.34 Same 0.34