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Alibaba’s Investment In Singpost, More Bullishness To Come?
Tradeable, Tradeable Ideas | 29 May 2014
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By: Lim Si Jie
Articles (169) Profile
  1. Alibaba’s purchase of SingPost signals its intention to expand into the SEA and APAC market.
  2. The investment from Alibaba will be used to expand SingPost’s regional network and infrastructure
  3. SingPost is likely to see an increase in business volume in the SEA and APAC region

Chinese e-commerce giant Alibaba Group holdings will be buying a minority stake in SingPost for $312.5 Million for a 10.35 percent stake in SingPost. According to SingPost, they will form a strategic collaboration with Alibaba to grow international e-commerce logistics business.

Both companies have signed a memorandum of understanding (MOU) which allows them to discuss and negotiate a joint venture (JV) with respect to the international e-commerce logistics business.

Alibaba used to only provide its e-commerce services in the PRC. Consumers from the SouthEast Asia (SEA) region who wants to purchase anything from their e-commerce site, has had to go through an agent. These agents would then charge a fee (sometimes exorbitant) to purchase goods on behalf of the consumers.

As Alibaba expands its operations, they are looking to target the SEA region especially with the setting up of Taobao SEA. SingPost is one of the leading provider of e-commerce logistics solutions in the region. With its regional network and infrastructure, SingPost is able to offer fully integrated e-commerce logistics solutions to its customers in the region. These solutions includes freight transportation, warehouse fulfilment, delivery and returns.

I believe that Alibaba wants to capitalize on the expertise and resources that SingPost already possess to aid in its expansion into the SEA e-commerce market.

The major stumbling block in e-commerce business is logistics. How does Alibaba ensures that the goods that are transacted on their e-commerce site reaches the consumers safely and timely?

It is not so simple as hiring a vendor to do the delivery. There needs to be a seamless integration between Alibaba and the logistics solution provider to ensure successful penetration into the SEA market. What better way to ensure the integration than to buy a stake in SingPost? (By the way, Amazon does their delivery through SingPost.)

What It Means For SingPost

In my previous article, I quoted that a challenge that SingPost faces is business volume. Alibaba is the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013. SingPost is poised to benefit from Alibaba’s expertise in e-commerce, technology and especially business volume.

Despite challenging conditions in the postal service industry, SingPost may still be a worthwhile investment. Why?

While Alibaba taps into SingPost’s reputation for prompt and assured delivery, SingPost would also be able to significantly scale up its regional capabilities and infrastructure to meet growing e-commerce demand in the SEA and Asia Pacific (APAC) region via Alibaba’s investment.

SingPost will be able to grow from its regional e-commerce  logistics and strengthen it as a regional revenue stream. While SingPost’s core domestic business continues to be under tremendous pressure from rapidly declining  domestic traditional mail volume, the international business volume from Alibaba would offset and ease the pressure on domestic traditional mail volume.

Future Outlook
Yes, there may be a lot of hype from investors given that Alibaba, about to become the largest IPO company since VISA, has invested into SingPost. However, as a long term investor, I prefer to see some substantiated results before I plough my money in.

For those who have a bigger risk appetite, you might see this as a chance to enter SingPost before SingPost shows any substantiated results. But still, point to note, SingPost has just surpassed its 52-week high this morning.

In fact, if you are holding onto a size able portion of Singpost, you might want to cut your exposure and take some profit off the table. As Warren Buffett is often quoted as saying, “be fearful when others are greedy.”.

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Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

Singapore Post  0.945 +0.025 +2.72%   
Business: [FY19 Turnover] Post and Parcel (47.8%), logistics (31%), eCommerce (15.5%), property (5.7%).

Insight: May-19, FY19 revenue rose 2.9% to $1.6b largely du... Read More

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