Singapore Post - DBS Research 2019-09-19: Closing The US E-commerce Chapter

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SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Closing The US E-commerce Chapter

• No acceptable offers for US e-commerce businesses Jagged Peak and TradeGlobal.
• Voluntary petitions for relief filed under Chapter 11; to sell assets under supervision of bankruptcy court.
• Ongoing losses and professional fees to be incurred as bankruptcy proceedings goes on; bankruptcy proceedings will at best enable US entities to pay off all outstanding liabilities.
• Maintain HOLD, Target Price S$0.96.

What’s New

No acceptable offers for US e-commerce businesses.

• According to Singapore Post (SGX:S08), the resulting two non-binding offers received out of 105 interested parties for its US e-commerce businesses Jagged Peak and TradeGlobal were “commercially unfeasible”. Singapore Post has since ended the sale process.
• According to Singapore Post, the US e-commerce entities’ board of directors have since filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code, after assessing various options.
• See Singapore Post's announcements.

Voluntary petitions for relief filed under Chapter 11; to sell assets under supervision of bankruptcy court.

• Singapore Post is expected to incur professional and administrative fees during the Chapter 11 proceedings which “are not expected to be material”. Based on our understanding, the US subsidiaries will proceed to sell their assets, which should largely be property, plant and equipment fixtures, and other software systems that the US subsidiaries may have.

Ongoing losses and professional fees to be incurred as bankruptcy proceedings goes on; bankruptcy proceedings are likely to at best enable US entities to pay off all outstanding liabilities.

• Singapore Post will no longer consolidate losses from US subsidiaries from 3QFY20 onwards. In the meantime, we believe ongoing losses and professional fees will be incurred as bankruptcy proceedings goes on with Singapore Post seeking to maximise any recoverable amount from its assets. The proceedings are likely to see Jagged Peak and TradeGlobal claiming from their debtors, which should largely be their customers.
• Creditors of the US subsidiaries, which we expect to comprise trade creditors and working capital loans, are also expected to file for claims subsequently with the filing under Chapter 11, though we do not expect the amount to be huge. We believe the bankruptcy proceedings will at best enable the US entities to pay off all outstanding liabilities.

Maintain HOLD, Target Price S$0.96.

• As the bankruptcy proceedings are likely to continue through the short-term compared to a liquidation which may be more straightforward, we continue to maintain our HOLD call on Singapore Post with Target Price of S$0.96 as we continue to see headwinds such as
  1. higher terminal dues adversely affecting international mail volume which has been the key growth driver for the postal and parcel division, and
  2. higher operating costs to improve service quality in Singapore.
• Nonetheless, in the longer run, we believe Singapore Post possesses the ability and resources to leverage on its existing network to increase its market share in Singapore.

Rui Wen LIM DBS Group Research | Sachin MITTAL DBS Research | https://www.dbsvickers.com/ 2019-09-19

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.960 SAME 0.960