Singapore Post Ltd - CIMB Research 2015-12-09: Game face on

Singpost SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd - Game face on

We see stronger earnings growth in the medium term as SPOST moves on from the startup phase to executing its strategy of being a global e-commerce logistics player.
We also see volume growth opportunities as Alibaba expands aggressively outside China, and as goods flow more freely across borders with the AEC.
Maintain Add; 4% yield pending earnings re-rating in the medium term.

SPOST is entering phase 3.0, an accelerated growth phase, in FY3/16-20 where its focus will be on:
1. growing its freight and e-commerce logistics business globally,
2. enhancing productivity,
3. leveraging partnerships,
4. unlocking full asset value, and
5. widening its customer-centric go-to-market products.
Its goal is to become a true MNC by 2020. Since FY3/12, SPOST has been actively involved in M&As to build up its e-commerce logistics network, but its focus will now shift to post-merger integrations.

With the acquisitions of TradeGlobal and Jagged Peak, SPOST will have more than 100 customers of mono-brands, including the likes of fashion brands Calvin Klein, Hugo Boss and Tory Burch, and brands of FMCG companies Nestle and Kimberly Clark.
We think a key growth area for SPOST would be to help these brands execute an end-to-end e-commerce logistics strategy in Australasia.
Its bigger scale will also allow it to have an edge over startups trying to compete in the same space in ASEAN.

Jack Ma’s 10-year target for Alibaba is to grow its international revenue to 50% of total revenue, up from today’s 8%.
We think this is beneficial for SPOST, Alibaba’s preferred shipping partner in ASEAN. SPOST now handles Alibaba’s inbound and outbound shipments in China, is the preferred supplier for its premium products, and works closely with it in Indonesia and Brazil.
We see more opportunities for collaboration to drive volume growth ahead as Alibaba expands outside China.

One of the key inefficiencies in ASEAN e-commerce today is the different customs clearance processes and amount of duties charged in each country, hindering growth of cross-border e-commerce transactions.
We think the ASEAN Economic Community (AEC) will be beneficial for e-commerce volume growth in the long run, as processes are streamlined and goods can flow freely across borders.

We reiterate Add, with a DCF-based target price of S$2.04 (7% WACC).
As SPOST transitions from the startup phase to executing its strategy of becoming a global e-commerce logistics player, we think earnings will finally see better growth momentum in the medium term. That said, we acknowledge that near-term earnings may still be under some pressure as it completes the tail end of its investments.
The stock offers 4% yield while waiting for earnings to re-rate.

Jessalynn CHEN CIMB Securities | http://research.itradecimb.com/ 2015-12-09

CIMB Securities SGX Stock Analyst Report ADD Maintain ADD 2.04 Same 2.04