National courier faces stiff last mile competition

“Pos Malaysia’s ability to win back customers that had been previously turned away is testament to its improving service quality.” Hong Leong Investment Bank Research

KUALA LUMPUR: Intense competition in the last mile delivery space could potentially weigh down on Pos Malaysia Bhd’s profitability, says Hong Leong Investment Bank (HLIB) Research.

This is despite the group having achieved breakeven in the second quarter and also, seeing early signs of volumes recovery, the research house said in a note to clients.

As the economy emerges from the pandemic, HLIB Research said the overall parcel volume handled by the market collectively shrunk by 30% due to the consumer buying trend shifting from online to physical stores, and waning consumer sentiment.

“ecommerce players are increasingly insourcing their operations, which also has a negative impact to Pos Malaysia’s parcel volumes,” added the research house.

To mitigate this, Pos Malaysia is working on improving its overall parcel yield, by altering its customer mix to focus on customers that are more service-oriented, rather than cost oriented, as its existing customer mix is skewed towards the lower yield segment.

“We understand that the parcel yield has improved by more than 5% thus far, falling slightly below its initial target to improve by 7%.

“Also, Pos Malaysia’s ability to win back customers that had been previously turned away is testament to its improving service quality, in our view,” said HLIB Research.

However, Pos Malaysia’s management has indicated that third quarter parcel volumes remained rather depressed so far, although the group is seeing early signs of volumes recovering.

Pos Malaysia plans to reduce its transportation costs by 20% in the second half, via productivity improvements as well as efforts to merge both its mail and courier networks.

The group is also not anticipating any significant cost increases, specifically in manpower costs despite the implementation of higher minimum wages, given that majority of its staff are earning above the current minimum wage of RM1,500.

HLIB Research noted that the potential parcel volume growth is also unlikely to drive costs higher, as Pos Malaysia has sufficient capacity and capabilities to handle the parcel volumes, without having to increase headcounts.

Also, in order to create a more level playing field for all courier service providers, Pos Malaysia and other industry players are working with the regulators, in the hope of imposing a floor-pricing for the price per parcel, to weed out competitors that have been undercutting to gain market share.

HLIB Research pointed out that regulators are also looking to introduce some check mechanisms to monitor delivery masking, whereby ecommerce platforms dictate the courier service provider of choice, instead of the shipper or buyer.

HLIB Research maintained its “hold” call on Pos Malaysia’s stock and a target price of 61 sen.