Excerpts from analyst's report
CIMB analyst: Jessalyn Chen
 Photo: www.yebber.comExecutive summary of key priorities Bring in experienced hires to lead ecommerce logistics • With the departures of ex-CEO Wolfgang Baier and ex-Chairman Lim Ho Kee, key members of the team responsible for SPOST’s transformation into an ecommerce logistics player have left the firm with little continuity. The recent departure of ex-COO Sascha Hower has also dampened confidence. • We think bringing in experienced hires from companies with similar regional operations would enable SPOST to accelerate its push into ecommerce logistics and tackle the competition from other ecommerce enablers. • Good cultural fit is also an important consideration in hiring new talent. |
Upfront impairment of goodwill for TG to ease expectations
• It is no secret that SPOST likely overpaid for its acquisition of TG. While TG has an impressive portfolio of international brands as its clients, we question whether it will be able to recognise sufficient synergies to justify the lofty 27x EV/EBITDA it paid to acquire TG from private equity firm Bregal Sagemount.
• SPOST’s value-in-use assumptions for its goodwill calculations target an average cash flow growth rate of 23% and terminal growth rate of 3% for TG. We think these levels are only achievable if it successfully brings the acquired brands into new markets, as the average organic sales growth rate of selected brands was only 6% in 2015.
• Taking an upfront impairment of goodwill for TG would ease expectations on the new CEO to drive an aggressive amount of synergies in future years. Maintain edge with Alibaba
• Alibaba’s recent acquisition of a majority stake in Lazada could shake things up for the intended JV with SPOST.
• We think that Alibaba’s expansion plans and priorities are more similar to Lazada’s than SPOST’s, in terms of fulfillment and last mile delivery. Both aim to build a logistics network to reach second-tier cities and rural areas. Delivery time is also a mutual priority, even if it means higher capex and investment to build its own network.
| ♦ Downgrade from Add to Hold; brace for a turbulent year |
 "We downgrade to Hold and cut FY17-19 net profit by 5-9% for losses at TG, higher depreciation and lower Quantium revenue. Our DCF-based target price falls to S$1.49 (7% WACC) as we bring forward capex from FY18 to FY17 and remove cash inflow from 5% share issuance to Alibaba and sale of 34% stake in Quantium. "We see possible consensus downgrades from lofty expectations of 12% core net profit growth. Risks to our call include stronger synergies from TG/JP and a meaningful JV materialising." -- Jessalyn Chen (photo) |
• In contrast, SPOST employs an asset-light model, with its fulfillment centres mainly located in capital cities and last mile deliveries carried out by local couriers or the postal network. SPOST’s focus is providing a low-cost option.
• We think SPOST’s key competitive advantages remains its postal network and ability to leverage on bilateral agreements and postal-to-postal rates for low-cost cross-border shipments.
• Even if the Alibaba JV does not materialise, SPOST could remain relevant to Alibaba by handling cross-border shipments as more Chinese sellers list their products on Lazada’s ASEAN platform and vice versa.
Balance growth against dividends
• SPOST raised its ordinary DPS from 6.25 Scts to 7 Scts in FY16.
• The rationale for this could have partly been to compensate shareholders for the delay in the Alibaba JV.
• Assuming that the second round of share issuance and JV (sale of 34% stake in Quantium Solutions) with Alibaba does not materialise in FY17, SPOST will fall short of cash for its capex needs and dividends.
• We think that a return to 6.25 Scts ordinary DPS would make sense to conserve cash for future investments into the ecommerce logistics business
Full report here.