Monday 13 July 2015

Singapore Post

UOBKayhian on 9 Jul 2015

FY16F PE (x): 24.0
FY17F PE (x): 21.1

In an announcement on 8 Jul 15, Singapore Post (SPOST) and Alibaba Group stated that they would expand their e-commerce logistics cooperation through the following initiatives: a) Alibaba will invest up to about S$92m (US$67.9m) in Quantium Solutions International (QSI) for a 34% stake, b) Alibaba Group will purchase 107.6m new ordinary shares amounting to 5% of the existing share capital of SPOST for S$187.1m (US$138.6m), and c) SPOST and Alibaba have entered into a joint strategic business development framework to further improve efficiency and integration of e-commerce logistics solutions. A shot in the arm. We expect Alibaba’s investment (S$92m for a 34% stake) in QSI to accelerate the build-up of SPOST’s ecommerce logistics infrastructure and capabilities. It is likely to provide a platform for both parties to strengthen collaboration and realise synergies which will include e-commerce warehousing, last mile delivery and other endto-end ecommerce solutions. The remaining 66% stake in QSI will be held by SPOST. We estimate that QSI will contribute 22.7% of SPOST’s FY16 revenue and grow to S$242m. (FY14/15: S$202m) Maintain BUY with a target price of S$2.19, based on DCF model. We have factored in the expected increase in number of shares for the full year of FY16 and note that despite the minimal EPS dilution, we have not yet worked in the entire earnings uplift from Alibaba’s contribution. We expect SPOST’s earnings growth to outweigh the dilution.

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