SingPost shares jump to record high on Alibaba deal

Some analysts guess China firm may also buy SingTel's 25% stake in SingPost

Anita Gabriel
Published Thu, May 29, 2014 · 10:00 PM
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CALL it the "Alibaba effect". Investors cheered Singapore Post's (SingPost) strategic pact with China's e-commerce giant Alibaba, jolting its shares up by 8.4 per cent or 13 cents to $1.68 - a fresh all-time high since its listing in 2003.

The counter, which hit a day's high of $1.75, racheted up trading volumes of 67 million shares worth $114.3 million on news that Alibaba will pick up a 10.35 per cent stake in the postal company for $312.5 million. It was the day's most active stock by value and fourth most active by volume. Both firms will also join hands to leverage on each other's strengths - SingPost on Alibaba's hefty business volumes and the online retail giant on SingPost's steady e-commerce logistics network in the region.

The tone among analysts, who were mostly already bullish on the firm prior to the announcement of the landmark deal on Wednesday, was upbeat.

Some, such as CIMB Research analysts, even served up more spice, conjecturing that Alibaba, en route to an initial public offering (IPO) in the United States, could buy a bigger slice of SingPost by snapping up Singapore Telecommunications' (SingTel) 25 per cent stake in the postal carrier.

"Compared to the expected US$15 billion-US$20 billion to be raised from the IPO, a US$609 million investment to buy out SingTel's stake in SingPost does not seem like a big feat," said CIMB, which has raised its target price for SingPost to $1.86 on the back of the deal's goodness.

Bullishly titled Open sesame, CIMB's report lauded Singapore's national postal carrier's steady progress in shaping up into a regional e-commerce logistics player.

The tie-up, it said, would provide SingPost with "fuel to expand more aggressively in the region, with stronger earnings growth potential both organically and via mergers and acquisitions" (M&As).

With a plumped-up cash position - the deal will raise net proceeds of $308 million - SingPost will be able to not only step up the pace of acquisitions but also boost the size of targeted assets.

"SingPost's strategic partnership with Alibaba opens doors via access to funds for larger-scale M&As and the opportunity to leverage on Alibaba's customer base to scale up its regional e-commerce logistics operations," said CIMB.

SingPost has already staunchly set itself apart from other postal players in Asia by moving big time into e-commerce to tap the potential of the growing Internet economy and offset the sliding traditional mail business.

Under a rigorous plan and one that also involved gobbling up assets in the region, it has cleverly pieced together a whole spectrum of end-to-end e-commerce logistics solutions with a last-mile delivery network in Singapore, Malaysia, Vietnam, India, Thailand and the Philippines.

It is SingPost's point-to-point logistics in the region, a sweet, burgeoning yet relatively new market for the Chinese e-retailer which online bazaar Taobao is looking to grow internationally, that must have been the lure.

For SingPost, the deal with the world's largest online and mobile commerce company, it is hoped, will broaden the customer base, crank up volumes and turn in rosier margins from higher utilisation of warehousing, freight forwarding and international mail.

But first, as pointed out by OCBC Investment Research analyst Low Pei Han, SingPost needs to step up investments to build a full regional e-commerce logistics value chain to better handle Alibaba's volumes.

"With access to more volumes, SingPost would be able to obtain a scale effect and bring down cost per unit of good handled," Ms Low added.

Even from a credit ratings perspective, there was good news, albeit expected given that the deal will top up SingPost's kitty.

Standards & Poor's maintained its A rating with a stable outlook for SingPost on the premise of a strong business profile and modest financial risk.

"The partnership is consistent with our expectation that SingPost will continue to enhance its market position in logistics and express delivery in Asia-Pacific and conservatively execute its investment activities," said the rating agency.

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