Singapore Post - DBS Research 2020-10-19: Acquisition To Scale Australian Logistics Operations

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SINGAPORE POST LIMITED (SGX:S08)

Singapore Post - Acquisition To Scale Australian Logistics Operations

• SingPost acquires Freight Management Holdings, a 4th party logistics service company in Australia.
• Acquisition price of S$84.1m for 38% stake translates to ~16x PE.
• New acquisition adds scale to its Australian logistics business.
• Maintain Fully Valued with unchanged Target Price of S$0.64.

Acquired Freight Management Holdings (FMH), a 4th party logistics (4PL) service company in Australia.

• According to SingPost (SGX:S08), the principal activity of FMH is to provide integrated supply chain and distribution solutions to Australian customers through its 4PL technology platform (EFM).
• FMH currently provides services to > 500 businesses in Australia, across manufacturing, print and packaging, technology, healthcare and pharmaceuticals, mining, transport and logistics, agriculture and retail and consumer sectors, having built its client base over the last 20 years.

Cloud-based logistics management software.

• FMH’s proprietary cloud-based logistics management software (OneFlo) allows customers to quote, book shipments and track in real-time. The main difference between a 4PL and a 3rd party logistics (3PL) player is that 4PL handles the entirety of a supply chain while a 3PL is mainly concerned with handling just the logistical process. 4PLs may own assets like trucks and warehouses while 3PL providers generally don't own such assets.
• FMH is able to match customers’ freight profile with the optimal carrier, increasing efficiency, utilisation and profitability for its customers and carrier, partnering with > 150 carriers last year.

S$84.1m acquisition price for 38% stake, which translates to ~16x PE; to contribute ~S$4m to SingPost’s net profit.

• Based on the financial year ended 30 June 2020, net asset value and net tangible assets stood at A$26.0m (~ S$25.7m) and A$13.3m (~S$13.2m) respectively. Annual profit before tax of FMH was ~A$20.3 million (~ S$20.1 million), EBITDA was A$26.0 million (~S$25.6 million), net tangible assets (“NTA”) was ~A$13.3 million (~ S$13.2 million).
• Assuming 30% tax rate, FMH’s profit after tax would be ~S$14.1 million. This translates into an acquisition multiple of ~16x historical PE, seems reasonable for a cloud-based software company.
• After taking into account interest expense on S$84m, the acquisition could add ~S$4m to SingPost’s annual profit on our estimates.

Acquisition adds scale to Australia logistics business; maintain FULLY VALUED on headwinds from postal.

• The acquisition of Freight Management Holdings (FMH) adds scale to its logistics business in Australia, on top of Couriers Please, an express parcel delivery company and Quantium Solutions Australia, an eCommerce logistics provider, as SingPost seeks a more holistic strategy in Australia and derive synergies across the business units. However, we maintain our FULLY VALUED rating on SingPost on ongoing headwinds from postal segment.
• Our Target Price of S$0.64 represents c.14x FY22F PE, which is near -2 SD of its 4-year average PE multiple.
• See SingPost Share Price; SingPost Target Price; SingPost Analyst Reports; SingPost Dividend History; SingPost Announcements; SingPost Latest News.

Sachin MITTAL DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2020-10-19

SGX Stock Analyst Report FULLY VALUED MAINTAIN FULLY VALUED 0.640 SAME 0.640