Singapore Post - CGS-CIMB Research 2019-09-19: No More US E-commerce Drag From 3Q20F


Singapore Post - No More US E-commerce Drag From 3Q20F

  • SingPost announced the sale process of its US e-commerce businesses has closed with no acceptable offers, and will instead exit via Chapter 11.
  • US subsidiaries largely written off in FY19; expect earnings relief from 3Q20F for Singapore Post share price re-rating. Maintain ADD.
  • We continue to like the stock for earnings recovery, net cash position, c.4% yield and trading valuation at more than 1 s.d. below historical average.

No buyer for US e-commerce; winding down via Chapter 11

  • Following the announcement on 3 April 2019 on the sale process of its US e-commerce businesses, Singapore Post (SingPost, SGX:S08) announced today that the 6-month sale process has now concluded with no acceptable offers (previous 2 non-binding offers were deemed commercially unfeasible).
  • Both TradeGlobal and Jagged Peak have separately filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code. Under the provision of the bankruptcy court, the US subsidiaries intend to pursue the sale of all or substantially all of their assets.

No more earnings drag from 3Q20F, almost zero carrying value left

  • While the group is expected to incur professional and admin fees during the bankruptcy process, these are not expected to be material. SingPost will no longer include the US losses in its consolidated financial reports from 3Q20F, which will provide relief to prior earnings drag from the US operations (1Q20: S$6.9m loss, FY19: S$51.9m loss).
  • Despite the no-sale event, we see little downside risk given that the carrying value of the US subsidiaries has been largely written off in 4Q19 (impairment of S$100.4m), except for some working capital that may be recoverable.
  • The uncertainty arising from duration of Chapter 11 proceedings and possible financial impact (gains from sale of assets, other claims, etc.) is the key downside risk.
  • We think the exit from US e-commerce has not been fully priced in, and expect consensus earnings upgrades to drive share price re-rating from 3Q20F.

Maintain ADD

  • SingPost currently trades at 15.4x FY3/21F P/E, more than 1 s.d. below its historical mean. The stock is in net cash and offers 4-5% dividend yield (based on 60-80% payout ratio). See SingPost dividend history.
  • We think the recent SingPost share price decline offers a more attractive risk-reward, and maintain ADD on the stock, with unchanged DCF-based Target Price of S$1.13 and FY20-22F forecasts, as we had previously factored in US e-commerce exit by end-FY20F.
  • Other downside risk to our ADD call is rising competition; while margin improvement in its postal and logistics segments are potential catalysts.

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2019-09-19
SGX Stock Analyst Report ADD MAINTAIN ADD 1.130 SAME 1.130