Pos Malaysia’s move to e-commerce sensible
KUCHING: Pos Malaysia Bhd’s (Pos Malaysia) move of turning its focus on e-commerce has been viewed by the research arm of Hong Leong Investment Bank Bhd (HLIB Research) as sensible.
However, it pointed out that there are still uncertainties on the plan’s value accretion to the company in the medium term.
According to HLIB Research, during the fourth quarter of 2016 (4Q16) analyst briefing, the management had presented 13 key initiatives to streamline and enhance efficiency of Pos Malaysia.
Major initiatives which caught HLIB Research’s attention is the push into the high potential e-commerce space.
The research arm noted that the three key pillars of growth are e-market place, e-fulfillment and e-payment.
Within these pillars, the research arm opined that the push in e-fulfillment could be easily realized due to Pos Malaysia’s expertise in the logistics aspects of e-commerce.
HLIB Research said that this is in line with the proposed acquisition of KL Airport Services Sdn Bhd-Konsortium Logistik Bhd (KLAS-KLB) to play a major role in providing total point-to-point services to support the demand growth from e-commerce players like Lazada, Alibaba and etc.
“KLAS-KLB already owns warehousing space which could be partially converted to be e-commerce ready and its freight forwarding business unit would also complement to its point-to-point services,” the research arm said.
While HLIB Research believed turning attention to e-commerce is a sensible business move, it pointed out that the plan’s value accretion to the company remained uncertain in the medium term as the push into e-commerce requires solid business execution, heavy capital expenditure (capex) requirements and possibly extended gestation period.
At this juncture, the research arm believed that it is still premature to gauge the potential upside in Pos Malaysia’s earnings.
“Near term earnings headwinds include slowdown in conventional mail segment and cyclical swings in transshipment business, coupled with higher overhead costs,” it added.
On a side note, HLIB Research highlighted that despite the fact that 4Q16 margins for the transshipment segment suffered from higher transportation costs while transshipment charges are quoted in ringgit with cost pegged to the IMF Special Drawing Rights (SDR), the research arm said that in the later quarters improvement in margins would be noticed as revenue would be quoted in US dollar.
HLIB Research further noted that while courier volume registered double-digit growth year on year (yo-y), operating margins shrunk due to higher fixed cost allocation due to increasing revenue contribution.
“Management plans to optimise its workforce through combining postmen and courier men work scope under a single role with potentially smaller are of coverage per worker, avoiding the recurrence of double trips which is inefficient for the business,” the research arm said.
Overall, HLIB Research left its forecast for Pos Malaysia unchanged, pending completion of KLAS acquisition by 2QFY07.
HLIB Research upgraded its rating on Pos Malaysia to ‘hold’ from ‘sell’ as recent sell down in the stock has priced in near term earnings weaknesses.