Singapore Post

CIMB Research, Mar 25

WITH its low-cost distribution network and active acquisitions in the region, we believe that SingPost is ready to meet demand for low-cost end-to-end e-commerce logistics solutions in Asia.

We initiate coverage with an "add" rating and discounted cash flow-based target price of $1.55 (weighted average cost of capital 7.3 per cent). Catalysts are expected from e-commerce logistics growth.

The mailman finds a new job: SingPost has all the last-mile assets to deliver mail anywhere in Singapore.

Mail delivery is a sunset industry but SingPost's assets are still good for delivering a variety of goods in the world of e-commerce.

The business only requires tweaks to refine its infrastructure to deliver parcels, in addition to mail, add last-mile delivery capabilities in Asia and add end-to-end e-commerce logistics solutions - all of which SingPost is doing via investments or M&A.

Filling the gap in e-commerce logistics. SingPost's competitive advantage over its postal peers and other 3PL (third-party logistics) players is its ability to provide a full spectrum of e-commerce logistics solutions at low costs.

This is made possible by its access to postal-to-postal rates (governed by the Universal Postal Union, bilateral agreements with other countries and partnerships with low-cost couriers.

It also constantly enhances its capabilities with acquisitions. As no other postal player in Asia has moved into e-commerce (due to government mandates) and 3PL providers do not have access to such low delivery costs, SingPost has a clear advantage in costs and service offerings.

Paid to wait: SingPost used to be one of Singapore's high-yield stocks although it was operating in a sunset industry.

With its new push into e-fulfilment, it will have a unique blend of growth and yield.

The old business will still fund its dividends, while its net cash of $135 million will allow for earnings-accretive acquisitions that can aid its strategic repositioning.

Our estimates have not factored in complementary assets and acquired earnings from its $135 million net cash pile. In the meantime, investors are receiving an attractive dividend yield of 4.7 per cent while waiting for SingPost to turn into a swan.

ADD