Singapore Post - CGS-CIMB Research 2020-10-19: Further Expansion Into Australia


Singapore Post - Further Expansion Into Australia

  • SingPost is acquiring a 38% stake in Freight Management Holdings Pty Ltd (“FMH”) (an asset-light, technology-driven ‘control tower’ business in Australia) for c.S$84.1m.
  • FMH has consistently improved its profitability over the past three years, and enables SingPost to further tap into the growing AU e-commerce market.
  • No significant change to SingPost’s net gearing profile (S$223m net cash as of end Jun 20), but acquisition valuation is on the higher end. Reiterate ADD.

Acquiring a 38% stake in 4PL service company in Australia

  • SingPost (SGX:S08) announced that it has on 16 Oct 2020 entered into a conditional sale and purchase agreement with Freight Management Holdings Pty Ltd (“FMH”), to acquire an aggregate of 38% equity stake.
  • The total consideration of A$85.0m (S$84.1m) is payable in two tranches: completion of the first tranche is subject to the fulfilment of certain conditions, including but not limited to obtaining regulatory approvals (e.g. Foreign Investment Review Board of Australia). The completion of tranche two is expected to take place on or about 12 months upon the completion of tranche one.
  • SingPost is also granted a call option (exercisable during a one year period from the second anniversary date of tranche one completion) to purchase another 13% stake in FMH’s enlarged issued share capital. Should the call option be exercised, SingPost has a negotiation period of 90 days to acquire the remaining interest in FMH, or work towards an IPO of FMH.
  • FMH is a leading 4th party logistics (“4PL”) service company, providing integrated supply chain and distribution solutions to over 500 businesses across Australia through its core 4PL technology platform (OneFlo). Using its technology, analytics and network, FMH helps match freight profiles of its diversified client base with the optimal carrier (long-standing partnerships with over 150 carriers) to increase efficiency, utilisation and profitability for both customer and carrier. It has also been a customer of CouriersPlease, a wholly-owned subsidiary of SingPost for many years.

Accretive but slightly pricey acquisition; gearing profile intact

  • Freight Management Holdings Pty Ltd (“FMH”) has been consistently profitable over the last few years, with a PBT of A$8.0m (S$7.9m) and A$12.6m (S$12.5m) in FY6/18 and FY6/19 respectively.
  • Based on its most recent unaudited financial statements (FY6/20), FMH recorded a PBT of A$20.3m (S$20.1m) and EBITDA of A$26.0m (S$25.7m), with a net asset value of A$9.9m (S$9.8m). This translates into a P/E multiple of c.16x, which is on the higher end of valuation, in our view.
  • An external valuation by PwC Securities Limited, Australia puts FMH at A$182m - A$217m, with a midpoint valuation of A$198m (S$196m), as at 31 Jul 2020.
  • Assuming the 28% stake acquisition has been completed on 1 Apr 2019, we estimate this will add c.S$4m (or 5.2%) to SingPost’s FY6/20 PATMI (ex-perps).
  • While the acquisition will be funded mostly by external borrowings and internal cash, SingPost would remain in a net cash position, with no significant change in its net gearing.

No change to our ADD call and FY21-23F forecasts for SingPost

  • We believe the acquisition will allow SingPost to further capitalise on the growing e-commerce market in Australia; its courier, express and parcel (“CEP”) market is estimated to be worth A$10bn GMV today, according to SingPost.
  • SingPost has a significant presence in Australia for the last five years, which is the largest revenue contributor outside of Singapore (FY20 revenue of S$174.2m).
  • Reiterate ADD with unchanged S$0.77 Target Price (0.5 s.d. below historical mean of 17.3x FY22F P/E) and FY21- 23F forecasts.
  • See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.
  • Re-rating catalysts: faster lifting of international travel restrictions and successful transformation from its Future of Post initiative.
  • Downside risks: elevated terminal dues and air freight rates.

NGOH Yi Sin CGS-CIMB Research | https://www.cgs-cimb.com 2020-10-19
SGX Stock Analyst Report ADD MAINTAIN ADD 0.770 SAME 0.770