15 October 2014 Singapore Post Ltd Catering for growth with new Regional eCommerce Logistics Hub SINGAPORE | FREIGHT & COURIER SERVICES| UPDATE Developing fully integrated eCommerce Logistics Hub in Singapore to cater to expanding ecommerce logistics business and rapid ecommerce market growth. Project is estimated to cost S$182 million and is expected to complete by end Jan 2016; development will be funded internally from Group’s cash holdings. We viewed the new hub development positively, indicating huge growth potential in SingPost’s ecommerce logistics business. Maintain TP at S$2.07; revised rating to Accumulate as share price moved closer to our TP since our initiation on 12 Sep-14. What is the news? SingPost has recently announced it will be developing a fully integrated regional eCommerce Logistics Hub to cater to its expanding ecommerce logistics business as well as to address global growth in ecommerce market. Located in Tampines LogisPark, the 553,000 sqf hub comprises 3-storey integrated centre, with fully automated parcel sorting facility and 2 warehousing floors, and an adjoining 8storey office block to house SingPost’s local and regional logistics operations. The logistics hub and adjacent office building will be built on land leased from JTC corporation for 30 years. Construction of the new hub is expected to complete by end Jan 2016. The development cost for the new hub is estimated to cost S$182 million and will be funded internally from the Group’s cash holdings. How do we view this? SingPost has a net cash of S$210m (ex S$350m perpetual securities) as of end Jun14, giving an excess of S$28m after internal financing of the new logistics hub. With an estimated FY15F cash flow from operations (over S$200m) more than sufficient to meet both dividends to shareholders as well as distributions to perpetual securities holders, we think SingPost would unlikely be gearing up in the short run as it continues its ongoing S$100 investment in postal service and infrastructure enhancement. We view the new eCommerce Logistics Hub development positively, signalling significant growth potential in SingPost ecommerce business. Accumulate (Revised from Buy) Target Price (SGD) 2.070 Forecast Dividend (SGD) 0.063 Closing Price (SGD) 1.815 Potential Upside 17.5% Company Description Si nga pore Pos t Li mi ted i s the na ti ona l pos ta l s ervi ce provi der i n Si nga pore. The Compa ny provi des domes ti c a nd i nterna ti ona l pos ta l a nd couri er s ervi ces i ncl udi ng end-to-end i ntegra ted ma i l s ol uti ons coveri ng da ta pri nti ng, l etter-s hoppi ng, del i very a nd ma i l room ma na gement, a nd others . Si nga pore Pos t a l s o offers end-to-end ecommerce l ogi s ti cs s ol uti ons Company Data Raw Beta (Past 2yrs weekly data) 0.43 Market Cap. (USD mn / SGD mn) 3019 / 3851 Ent. Value (USD mn / SGD mn) 3128 / 3986 3M Average Daily T/O (mn) 4.99 Closing Px in 52 week range 1.27 1.89 2.00 1.80 Volume, mn SPOST SP Equity STI (rebased) 80 70 60 50 40 30 20 10 0 1.60 1.40 1.20 1.00 Oct-14 Sep-14 Aug-14 Jul-14 Jun-14 May-14 Apr-14 Mar-14 Feb-14 Jan-14 Dec-13 Nov-13 Oct-13 Investment Action As the hub would only be ready in 2016, we do not foresee much impact on revenue and margins in the current and the next fiscal year. We make an adjustment on FY15F/16F capex and maintain our TP at S$2.07. While we continue to be positive on the growth prospects, valuation may seem a little stretched at current share price, with forward PE at ~26.5x (impacted by dilution effects on EPS from new share issuance to Alibaba). We revise our rating to Accumulate. Rating: Major Shareholders 1. Si ngTel Ltd 2. Al i ba ba Inves tment Ltd 3. Aberdeen As s et Ma na gement (%) 23.4 10.4 2.5 Valuation Method DCF (WACC: 6.2%; termi na l g: 2.0%) Analyst Colin Tan col i nta nwh@phi l l i p.com.s g +65 6531 1221 Page | 1 MCI (P) 046/11/2013 Ref. No.: SG2014_0158 Singapore Post Ltd 15 October 2014 FYE Mar Income Statement (SGD mn) Revenue EBITDA Depreci a ti on & Amorti s a ti on EBIT Net Fi na nce (Expens e)/Inc As s oci a tes & JVs Excepti ona l i tems Profit Before Tax Ta xa ti on Profit After Tax Mi nori ty i nteres t Net Income, reported Net Income, adj. Attri b. to perpetua l s ecuri ti es Attrib. to ordinary shareholders FY12 FY13 FY14 FY15F FY16F 579 216 (30) 186 (13) 1 0 174 (32) 142 (0) 142 135 0 135 659 215 (36) 178 (14) 2 0 167 (30) 137 (0) 136 141 15 126 821 216 (35) 181 (7) 4 0 179 (34) 145 (2) 143 145 15 130 FYE Mar Per share data (SGD) EPS, reported EPS, a dj. DPS BVPS FY12 FY13 FY14 FY15F FY16F 0.074 0.071 0.063 0.166 0.064 0.067 0.063 0.169 0.067 0.069 0.063 0.182 FYE Mar FY12 Cashflow statements (SGD mn) CFO Profi t before ta x 174 Adjus tments 33 WC cha nges 3 Ca s h genera ted from ops 210 Ta xes pa i d (33) Cashflow from ops 177 CFI CAPEX, net (26) Others (51) Cashflow from investments (77) CFF Sha re i s s ua nce 1 Loa ns , net of repa yments 0 Di vi dends pa i d (119) Others 297 Cashflow from financing 179 Net change in cash 279 Effects of excha nge ra tes 0 CCE, end 617 Source: Compa ny Da ta , PSR es t FY13 FY14 FY15F FY16F 167 42 24 233 (30) 203 179 37 56 271 (29) 242 193 34 21 248 (27) 220 200 40 12 252 (37) 214 (13) (39) (52) (38) 0 (38) (125) (14) (139) (172) 0 (172) 1 (0) (118) (22) (140) 11 0 628 7 3 (119) (319) (428) (224) 0 404 4 0 (124) (21) (141) (60) 0 345 0 0 (133) (21) (155) (112) 0 232 909 228 (33) 194 (6) 4 0 193 (36) 157 (2) 155 155 15 140 0.068 0.068 0.063 0.172 960 240 (38) 202 (6) 5 0 200 (37) 162 (2) 161 161 15 146 0.068 0.068 0.063 0.178 FYE Mar Balance Sheet (SGD mn) PPE Inta ngi bl es As s oci a tes & JVs Long term i nves tments Others Total non-current assets Inventori es Accounts Recei va bl es Inves tments Ca s h Others Total current assets Total Assets Short term l oa ns Accounts Pa ya bl es Others Total current liabilities Long term l oa ns Others Total non-current liabilities Non-control l i ng i nteres t Perpetua l s ecuri ti es Shareholder Equity FYE Mar Valuation Ratios P/E (X), a dj. P/B (X) EV/EBITDA (X) Di vi dend Yi el d (%) Growth & Margins (%) Growth Revenue EBITDA EBIT Net Income, a dj. Margins EBITDA ma rgi n EBIT ma rgi n Net Profi t Ma rgi n Key Ratios ROE (%) ROA (%) Net Debt/(Ca s h) a dj. Net Gea ri ng (X) FY12 FY13 238 236 88 186 91 94 206 234 8 13 631 763 2 4 95 130 75 17 617 628 10 12 799 791 1,430 1,554 0 316 211 271 34 32 246 620 506 220 19 46 525 267 (0) 0 347 347 313 321 FY14 FY15F FY16F 234 184 98 243 8 766 5 127 6 404 13 556 1,322 14 294 43 352 220 54 274 2 347 347 329 180 102 255 10 876 5 146 8 345 13 517 1,393 14 335 51 400 220 56 276 4 347 367 467 176 107 255 10 1,014 6 155 8 232 13 413 1,427 14 355 51 420 220 56 276 6 347 379 FY12 FY13 FY14 FY15F FY16F 12.7 5.4 8.9 7.0% 18.7 7.4 12.3 5.0% 21.3 8.0 13.8 4.3% 26.6 10.6 17.5 3.4% 26.5 10.2 16.6 3.4% 2.2% 13.9% 24.6% 10.6% -8.1% -0.8% 0.4% 5.6% -11.3% -4.2% 1.5% 7.4% -9.5% 4.1% 2.9% 6.7% 5.7% 5.3% 3.6% 3.8% 37.4% 32.6% 26.3% 25.1% 25.0% 32.2% 27.1% 22.1% 21.4% 21.0% 24.6% 20.7% 17.6% 17.2% 16.9% 42.4% 44.5% 43.5% 43.4% 43.1% 10.7% 9.4% 10.1% 11.4% 11.4% 235 0.8 255 0.8 177 0.5 236 0.6 349 0.9 *Forward multiples and yields are based on current price; historical multiples and yields are based on historical prices Page | 2 Singapore Post Ltd 15 October 2014 Ratings History Market Price Target Price 2.30 2.10 1.90 1.70 1.50 1.30 1.10 0.90 0.70 0.50 Source: Bl oomberg, PSR Oct-14 Jul-14 Apr-14 Jan-14 Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 1 2 3 4 5 PSR Rating System Total Returns Recommendation Rating > +20% Buy 1 +5% to +20% Accumul a te 2 -5% to +5% Neutra l 3 -5% to -20% Reduce 4 <-20% Sel l 5 Remarks We do not ba s e our recommenda tions entirel y on the a bove qua ntitative return ba nds . We cons i der qua l i tative fa ctors l i ke (but not l i mi ted to) a s tock's ri s k rewa rd profi l e, ma rket s entiment, recent ra te of s ha re pri ce a ppreci a tion, pres ence or a bs ence of s tock pri ce ca tal ys ts , a nd s pecul a tive undertones s urroundi ng the s tock, before ma ki ng our fi na l recommenda tion Page | 3 Singapore Post Ltd 15 October 2014 Important Information This publication is prepared by Phillip Securities Research Pte Ltd., 250 North Bridge Road, #06-00, Raffles City Tower, Singapore 179101 (Registration Number: 198803136N), which is regulated by the Monetary Authority of Singapore (“Phillip Securities Research”). By receiving or reading this publication, you agree to be bound by the terms and limitations set out below. This publication has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. 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