Singapore Post -
Share Price S$1.635
Target Price S$1.73
Implications of e-commerce proliferation
Singapore Post (SingPost) is transforming from a traditional postal operator into a regional leader in e-commerce logistics and trusted communications. While it continues to hold an estimated market share of over 90% in Singapore mail, it has also aggressively strengthened its regional logistics presence which places it in a prime position to advance to the next level. Tapping on the e-commerce trend by delivering end-to-end solutions, SingPost has set itself a step ahead of its peers as it reinforces its long-term sustainability.
• Running ahead into e-commerce. Alibaba has put a stamp of approval on SingPost’s ecommerce initiatives with a proposed investment and collaboration for an e-commerce logistics platform in Southeast Asia. The funding will accelerate the pace of SingPost’s growth and development and offset the declining traditional mail business. The potential collaboration will give SingPost priority in handling the e-commerce giant’s outbound volume to the region. E-commerce-related revenue accounted for 26% of SingPost’s revenue in FY14. We expect this revenue stream to grow 13-18% annually. We see potential for margin expansion within the logistics division to mid-teens on bigger volumes.
• Raising its stake beyond Singapore. Revenue from regional markets has risen to 28% of group revenue from 19% in FY13 while non-mail revenue has grown to 45% from 37% previously. SingPost’s regional presence stems from its logistics network, which accounted for 88% of overseas revenue. As we expect e-commerce volume to continue to grow, the group’s regional business will also continue to gain ground as it invests in building its end-to-end e-commerce logistics solutions network. SingPost is also continuing to explore yield enhancement opportunities for its properties and will be opening its first Lock+Store facility in Malaysia in Sep 14.
• Still reigning in the domestic market; flushed with cash. SingPost will begin running its new integrated sorting machines by the end of this year. This is part of its S$100m three-year investment plan to upgrade its mail services. When fully operational, the machines are expected to boost sorting capacity by 17% and automation rate to 95%. We view the group’s efforts to continually innovate positively as mail will continue to generate the bulk of the group’s cash flow while the other divisions incur integration and developmental costs. The group had S$404m in cash and S$234m in borrowings as of end-Mar 14. We project operating cash flow of over S$200m annually, which will support our forecasted 6.25 S cent annual dividend (4% yield).
• BUY with target price of S$1.73 based on our 3-stage DCF model (stage 2 growth assumption of 5%, terminal growth of 1.5%), which implies an FY16F PE of 24x. We see SingPost riding on a compelling medium-term Southeast Asia e-commerce growth story.
Publish date: 06/06/14