Singapore Strategy - Assessing The Implications From E-Commerce Trend

UOBKayhian on 27 May 2014

Assessing the rise of e-commerce. We believe the trend of e-commerce is here to stay and is expected to continue growing. This report highlights the winners and losers of this trend and potential stock implications.

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Rising and rising trend of e-commerce. Worldwide B2C e-commerce is valued at US$1.5t, according to eMarketer and is slated to grow 20% in 2014. Much of the growth will take place in Asia and the US due to rapidly expanding online and mobile user applications. eMarketer has also opined that in 2014, Asia Pacific will be the biggest ecommerce market in the world. Interestingly, according to the A.T. Kearney’s Global Retail E-Commerce Index, Singapore ranks a high 11th spot on the global index for potential growth due to characteristics such as infrastructure and consumer behavior. Old vs New Economy. The proliferation of the trend of e-commerce will have significant impact on selected stocks and sectors in Singapore. Negatively impacted could include traditional retailers such as FJ Benjamin and Courts Asia. Even retail landlords such as CMT could be adversely affected as up to 5% of rental income is linked to tenant sales. Although this is modest, weak retail sales would eventually impact the ability of retailer to pay higher rental imposed by S-REITs. Conversely, potential winners include Singapore Post as well as SIA.

SingPost a clear winner. E-commerce-related revenues accounted for approximately 26% of the group’s revenue in FY14. Singapore Post (SingPost) has launched new mobile apps, online tools and e-commerce platforms to enhance and accelerate the growth of its end-to-end e-commerce solutions. The group has doubled its e-commerce portfolio to over 600 customers from only 300 in FY13, which includes global brands such as Adidas, Canon, Philips and Toshiba. We expect e-commerce-related businesses to continue growing 10-15% annually. We have also raised our target price by 8% to S$1.73/share (previously S$1.60) to reflect a change in our assumption for its stage 2 growth (from 4% previously to 5%).