Ups stake in Efficient E-Solutions. Singapore Post (SingPost) announced recently that it has acquired 35m shares in Efficient E-Solutions Bhd (Efficient) for RM8.05m through a wholly-owned subsidiary, thus increasing its stake in Efficient to 20.12%. The seller of the approximately 4.94% stake was Beaufort International Equities, and the acquisition was made by way of a block trade through Bursa Malaysia at a cost of RM0.23/share, close to the weighted average price of RM0.22 on the market closing day before the transaction but higher than the company's NTA/share of RM0.15 as at 31 Mar 2011.
Fits into plan to expand data printing operations. Efficient is a Malaysian-listed company, and mainly provides integrated business process outsourcing solutions in data and document processing. This covers data extraction, conversion, formatting of documents, data printing and preparation of printed documents for distribution. The company also offers electronic bill presentment services, and it has over 2,500 employees in eight different locations throughout Malaysia. This investment fits into SingPost's plan to expand its data printing business in the region where it already has a presence via DataPost (recall that the group just completed the acquisition of DataPost in May). As mentioned in our earlier report (2 Jun 2011), outsourcing of such non-core functions in companies such as financial institutions, government organizations, utilities and telcos has grown over the years, and SingPost also sees good potential for growth in this business.
Keen to grow in Indonesia as well. This development comes closely after a private placement in mid Jun in which SingPost acquired 50m Efficient shares at RM0.195/share. SingPost and Efficient had also earlier entered into an MOU in which both companies will jointly invest in setting up data and document management operations in Indonesia, besides identifying other business opportunities, reflecting SingPost's desire to grow its data printing business in the region. Currently 11.5% of SingPost's revenue comes from overseas countries, and we see room for this figure to grow. Meanwhile, logistics now accounts for 30.5% of total revenue.
Maintain HOLD. We continue to like SingPost for its stable operating cash flows, prudent management, and decent forecasted dividend yield of 5.4%. But due to the limited upside potential, we maintain our HOLD rating and DCF-based fair value of S$1.21; potential catalyst could come from more news on the M&A front. (Low Pei Han)
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