• Issues shares to Alibaba at S$1.42/share
• Longer term growth
• Dilutive effect in the short term

Share issuance to Alibaba at S$1.42/share

Following a trading halt yesterday morning, SingPost announced that it has entered into an investment agreement with Alibaba Investment Ltd (wholly owned subsidiary of Alibaba Group Holding Ltd), under which Alibaba Investment will buy 30m existing ordinary shares held in treasury by SingPost and 190.096m new ordinary shares. The total 220.096m shares represent 11.55% of SingPost’s existing issued and paid-up share capital (excluding treasury shares), and upon completion, Alibaba will hold 10.35% of SingPost. The subscription price is at S$1.42/share, translating to gross proceeds of S$312.5m for SingPost.

What it means for SingPost

Both companies also signed an MOU to allow them to discuss and negotiate a JV in the business of international e-commerce logistics. From SingPost’s point of view, besides the creation of new relationships and opportunities for strategic cooperation with Alibaba, this move will allow it to benefit from Alibaba’s expertise in e-commerce and business volumes. In particular, priority will be given to SingPost’s logistics services (e.g. when Alibaba needs to ship goods to certain parts in SE Asia) based on commercial terms. SingPost will also have to step up on its investment efforts to achieve the full regional value chain of ecommerce logistics that is able to handle Alibaba’s volumes. By obtaining access to more of Alibaba’s volumes, SingPost would be able to obtain a scale effect and bring down cost per unit of good handled, though it is hard to quantify the near term impact given the lack of details so far.

Dilutive effect; FV drops to S$1.38

We assume a higher terminal growth rate in our FCFE valuation (2.5% vs 2% previously) due to a possibly higher growth potential over the longer term, but after taking into account the dilutive effect of the placement, our fair value estimate drops from S$1.42 to S$1.38. Maintain HOLD, though we note that sentiment on the stock may be strong in the near term due to factors such as the “Alibaba effect”.

Source: OCBC Research - 29 May 2014