SingPost’s 4PX share issuance to Alibaba-tied company a positive: Nomura

Singapore Post post boxes at the SingPost mCentre March 2018.Singapore Post post boxes.

Singapore Post’s announcement that its 20.14 percent effective stake in associate 4PX would be diluted by the issuance of additional shares to existing shareholder, Alibaba-tied Cainiao, is a positive, Nomura said in a note on Thursday.

The Singapore company said on Wednesday that its associated company Shenzhen 4PX Information and Technology agreed to issue new shares to Alibaba-tied Zhejiang Cainiao Supply Chain Management. Quantium Solutions International, or QSI, which is a subsidiary of SingPost, currently holds 30.52 percent of 4PX, and after the share subscription is completed, QSI’s stake will be diluted to 19.75 percent and 4PX will cease to be an associated company of SingPost, it said in a filing to SGX.

Cainiao, which is Alibaba’s logistics platform provider, could also make further cash contributions to 4PX in two tranches after its share subscription in the cross-border e-commerce logistics player, Nomura noted.

“We view this development positively,” Nomura said.

“Aside being positive on strengthening 4PX’s balance sheet (implying a potential cash injection of at least S$85 million by Cainiao, based on our calculation), more importantly, Cainiao’s increase in investments into 4PX will allow deeper business integration/collaboration among 4PX, Alibaba Group and SingPost on cross-border e-commerce activities,” Nomura added. It noted that Alibaba owns 14.5 percent of SingPost and 34 percent of QSI.

Nomura noted that after 4PX ceases to be an associated company, it will be removed from SingPost’s profit and loss statement as it becomes categorized as a minority stake.

That would effectively remove losses of S$8.3 million, S$5.5 million and S$800,000 from SingPost’s share of 4PX’s losses for fiscal 2019, assuming full-year impact, 2020 and 2021, respectively, Nomura estimated, noting it expects 4PX to continue losing money until fiscal 2022.

“The impact on SingPost’s earnings will be positive, raising earnings by 9 percent in fiscal 2019 assuming full-year impact (for simplicity), and 5 percent and 1 percent,, respectively, in fiscal 2020 and fiscal 2021,” it added.

The investment bank said that although a timeline wasn’t given, it expected the deal to be executed within the next six months.

Nomura kept a Buy call on SingPost with a S$1.52 target price.

Shares of SingPost ended Thursday down 1.82 percent at S$1.08.

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