Friday, September 9, 2016

The numbers behind SIngpost

I have said in the comment section in my previous post that I expect Singpost to grow by 10-20%.

So here is how the numbers add up.

Recovery of rental income from SPC mall.

SPC mall rental loss is about 4-4.5 mio annually, if you track the last 3 quarters of loss of income.

When redeveloped, the retail space will double. Not just that, a check at property Guru of rental rate at the nearby Paya Lebar square show psf rental of $25-$27

Even assuming $20 psf for 25000 sqm of retail space, we know the recovery of rental loss will be significant.

Next, the expenses. Depreciation cost has increase due to Logistic Hub TOP, but the savings in expenses might have to materialize. If we look at expenses, the depreciation of Logistic hub will be 5-6 mio annually, so the potential in savings should be more than that to offset it.

Third party warehouse rental expenses at Q1 stands at 35 mio, there is no info on the area of warehouse of the new logistic hub except that it covers 2 floors out of 3. Assuming two-third of the 550k is warehouse space, 360k sft of in house warehouse would already net expenses savings in excess of 5 mio. (Assuming dirt cheap warehouse rate of $1.2 psf is what Singpost is getting now, which i believe is very conservative)

So the cost savings calculation and revival of SPC mall would have almost nett 10% of the growth needed for the underlying profits.

If the Alibaba JV does materialize, which I think it will, then the capital injection can be used to pay down debts or fund further growth. I do think it will materialize not just because management "suggested" it would during the Q4 analyst briefing, but also that it made no sense for Alibaba to ditch Singpost for Lazada, since Indonesia is Lazada's turf, but Singpost's Asia share is less than 20%. It made more sense for it to complement each other. Apparently, the market do not think the JV will materialize and hence the lower valuation and fall in price. If the deal does not proceed, Singpost's shares price might further go down, but that would make it more attractive since the underlying business is still good, unless Alibaba not only decided not to increase its capital in SIngpost and quantium but pull out totally. That scenario is a bit extreme in my view.

If the deal does go through, the market will rerate it upwards again (Alibaba's contracted price to increase another 5% stake of singpost is $1.7), most probably, with possible synergy from Lazada's movement of goods feeding through.

All in all, it seems a rather good risk-reward profile.

2 comments:

  1. Personal I feel the depressed stock price of Singpost due to the miss-managements saga and highly there a chance of price revaluation of the additional alibaba capital injection.... Trade with care!!

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  2. HI KenT,

    Thanks for leaving a comment, I will. Keeping fingers crossed

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