Unlisted logistics players eye bigger slice of e-commerce pie

A crowded market is set to persist in Malaysia’s logistics segment this year, with non-listed and foreign-backed entities expected to make headway against industry stalwarts Pos Malaysia Bhd and GD Express Carrier Bhd (GDEX).

In a 2020 outlook report, MIDF Research said it sees intense competition from non-listed logistics players persisting, cautioning that for listed players, this means any benefits from their capacity expansion are likely negated by non-listed competitors’ price-cutting strategies.

As of November 2019, the Malaysian Communications and Multimedia Commission (MCMC) had registered 116 licensed delivery and logistics providers, mainly consisting of privately owned entities.

“These privately-owned entities will offer more attractive pricing, pressuring other players especially publicly-listed ones to offer lower fees and compress margins,” it said in its outlook.

For example, Tiong Nam Logistics Holdings Bhd’s e-commerce delivery business and Tasco Bhd’s trucking division remained in the red for the third
quarter of 2019 owing to stiff competition from other players, impacting their profits.

Other challenges include having to manage service quality during peak delivery periods entailing sudden increases in volume.

AmInvestment Bank Research observed that online shopping platform Shopee saw sales of 70 million items during the 11.11 promotional period. For context, the maximum daily sorting capacity of GDEX and Pos Malaysia stood at 710,000 pieces a day.

An analyst anonymously opined that 2020 will be challenging given non-listed logistics companies such as J&T Express (Malaysia) Sdn Bhd will still aggressively compete with listed last-mile delivery companies, Pos Malaysia and GDEX.

“That said, incumbents will still be able to depend on their market share,” the analyst added.

The MCMC is expected to green light higher tariffs for Pos Malaysia. However, while this helps in addressing some of its costs, it could also result in a decline of Pos Malaysia’s mail volume, the analyst opined.

In fulfilling its universal service obligation — to provide mail handling services for the entire country — the beleaguered national postal service provider must contend with more addresses to service, amid declining snail
mails that it handles.

Some players have bumped up capital spending to meet e-commerce growth and an increased cost negating the impact of higher volumes handled.

MIDF opined that GDEX’s courier business recorded a commendable revenue growth of 9.5% year-on-year (y-o-y), supported by robust e-commerce demand. However, the segment’s profit before tax growth declined 12% y-o-y due to higher investments in human capital to firm up its regional expansion and overall infrastructure to meet demand. As such, the research house expects the intense capital spending to prolong into 2020, as these investments have yet to mature.

MIDF also highlighted GDEX’s associate company Web Bytes has started focusing on high-impact projects such as providing a point of sales for airports under Malaysia Airports Holdings Bhd.

Meanwhile, Tasco has shifted its conventional retail logistics business to the cold supply chain (CSC) segment from warehousing, in a bid to expand the CSC’s main clientele of food and beverage companies to include convenience stores, petrol kiosks and pharmacies.

TA Securities Research said 2020 could see Tiong Nam privatised or the logistics company launching an initial public offering of its warehouses consolidated in a real estate investment trust (REIT).

Major shareholder and managing director Ong Yoong Nyock and family control 50.8% of the company, and it would cost them less than RM200 million to take full control of Tiong Nam, with RM691 million in shareholders’ funds and assets worth RM1.9 billion.

On the potential REIT, it observed in its 2020 outlook: “We believe the current low interest-rate environment is conducive for setting up a REIT, where the market is hungry for yields. More importantly, the REIT could help ease the cash liquidity pressure and improve gearing levels.”

As at the second quarter ended Sept 30, 2019, Tiong Nam’s net gearing level rose to 1.4 times with a total net debt of RM969 million. Its current debt ratio is at 0.94 times with RM328 million in debts due within 12 months. Further, its gross gearing ratio of 1.42 times is approaching the debt covenant threshold of 1.5 times, which may affect its ability to roll over debts in future.

It has a “buy” call on Tiong Nam with a target price (TP) of 76 sen, as well as Perak Transit Bhd with a TP of 44 sen. Tiong Nam closed last Friday at 49 sen and Perak Transit at 21 sen.

Source: The Edge Markets