Tapping into ASEAN e-commerce growth
E-commerce still underpenetrated in ASEAN: MQ estimates that ASEAN e-commerce could grow to $88bn by 2025 (32% CAGR), as penetration is still low at 0.8% (vs. 6-8% in China, Europe and US), per Google/Temasek. MQ believes that SingPost will stand to benefit given the high barriers to entry and scale of operations.
Alibaba the key growth driver: SingPost is Alibaba/Cainiao’s preferred logistics partner in ASEAN, especially since Alibaba purchased a 10% stake. Cainiao is Alibaba’s logistics arm, which was set up in 2013 due to the large volumes it had to handle. SingPost saw ~20-30% revenue growth in international mail (20% of revenue) in 3Q-1Q17 from this partnership, and MQ believes that this trend will continue.
Unique end-to-end e-commerce strategy: In addition to its deal with Alibaba, SingPost’s strategy to be the end-to-end e-commerce logistics provider for monobrand customers sets it apart from other, smaller courier players and slow-moving national postal sectors. It currently has sticky partnerships with 120 brands globally, including Hugo Boss and Tory Burch post the Trade Global acquisition, which will play a part in driving logistics revenue.
MQ’s earnings and target price revision
Post model revision, MQ lowers EPS by 15.1% in FY17E and 13.5% in FY18E to factor in lower operating profit margin before achieving economies of scale, and hence also revise its profit taking down to S$1.75 from S$2.15.
12-month price target: S$1.75 based on a Sum of Parts methodology.
Catalyst: Appointment of new CEO, e-commerce growth in the region