SingPost has acquired 30% of US-based Postea for US$9.4m cash and US$24.3m in the value of its intellectual property in SAM (Self-service Automated Machine) and SAMPLUS, POST21 retail system and vPOST online bill payment. SAM and SAMPLUS are 24-hour postal services kiosks that allow SingPost to reach customers at times when a trip to the post office is not possible or convenient. vPOST is one of South-east Asia’s largest online shopping and shipping service providers.

Postea, a company that develops and invests in new postal technologies, will “productise” SingPost’s IP through its investees, such as Innovations Group, a systems integrator that is the prime contractor for the US Postal Service’ Contract Postal Units kiosk program. The CPU kiosk is similar to SingPost’s SAM kiosk and is hosted in convenient locations such as drug stores and supermarkets. In return, SingPost will be able to use Postea’s technologies to further enhance its own IP.

This move is significant as it is the first time that SingPost has put a value to the suite of hardware and software technologies it has used for years. We have raised our FY10 forecast by 20% as SingPost will recognise an exceptional gain of US$24.3m, the value Postea has agreed upon in exchange for the 30% equity sold to SingPost. On the balance sheet side, an intangible asset will be created for the value of the IP. While SingPost has not yet decided on an amortisation policy, we reckon it should be quite a long-lived asset hence the depreciation charge should be minimal.

In addition, as the licensing agreement with Postea is not exclusive, there is future potential for value creation through the licensing of its intellectual property to other investors. We have raised our target price for SingPost to $0.98. In addition to valuing organic earnings at the low end of its long term historical valuations alone, we also attach a value of 3x to the intellectual property value created through the deal with Postea. Maintain BUY.