Surprise, surprise: SingPost’s Alibaba deal bursts initial analyst assumptions

It might be way bigger than you think.

SingPost’s much-lauded Alibaba deal could be much bigger than anyone has ever anticipated.

According to a report by DBS Group Research, SingPost might secure $200m worth of business from Alibaba, beating the research group’s base case forecast of $50m.

“Our FY16F forecasts could be beaten if Alibaba is able to ramp up its in South-East Asia and both companies are able to integrate their back-end systems quickly. We estimate that our FY16F earnings could benefit 5-10% in that case,” the report stated.

Here’s more from DBS:

SPOST will get priority for Alibaba’s carriage business in South-East Asia. We have assumed ~S$50m worth of business from Alibaba in FY16F which could easily be exceeded if Alibaba is able to ramp up its South-East Asian business.

We estimate that our FY16F earnings could benefit 5-10% in that case. The deal could also result in SPOST securing more business from other e-commerce players.

With S$482m net cash, SPOST may acquire profitable logistics or last mile players to expand its reach in Indonesia and other countries. Assuming that SPOST undertakes S$300m worth of acquisitions at 12-15x PER, there could be S$20-25m or 15-20% added to our FY16F earnings.

Alibaba’s entry convinces us further that SPOST is well-positioned to benefit from e-commerce sales, which according to eMarketer is expected to see CAGR of 29% in Asia over the next 4 years.