ANCHOR REPORT Asean logistics

130 Pages·2016·3.06 MB·English

Global Markets Research

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Asean logistics: Delivering the last mile

Logistics players ride the internet retail tide
6 October 2016
Research analysts
Asean remains well behind regional peers when it comes to overall
internet retail and last-mile delivery infrastructure. A tripling of Asean
ASEAN Transport/Logistics
postal volumes by 2020F combined with economies of scale for the more
established players should result in even greater earnings growth. Top Ahmad Maghfur Usman - NSM
[email protected]
regional players are circling too, evidenced by deals from both Japan
[phone]
(Yamato into GD Express) and Korea (CJ Express into Century Logistics).
Riddhi Jain - NSFSPL
We initiate at Buy on four stocks. SingPost is our top pick, given strong [email protected]
earnings growth (three-year CAGR of 21%) driven by logistics and [phone]
ecommerce fulfilment. LBC Express has a combination of low valuations
and strong earnings. GD Express could emerge as a formidable Asean
logistics player, on regional expansion moves. At Pos Malaysia we see
cost and revenue synergies following the acquisition of KLAS Group.
Key themes and analysis in this Anchor Report include:
(cid:131) Overview of the Asean postal and courier industries
(cid:131) Dynamics of Asean internet retail and consumer behaviour patterns
(cid:131) Asean as destination for Japanese / regional investors

Production Complete: 2016-10-06 03:47 UTC
See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Asean logistics

EQUITY: ASEAN TRANSPORT/LOGISTICS
Delivering the last mile
Global Markets Research

6 October 2016
Riding the internet retail tide

Anchor themes
Asean’s secular growth story on
Catalyst: Online shopping benefiting Asean’s last-mile delivery players.
increasing online shopping
Asean is still behind the curve when it comes to most things internet-related.
penetration presents upside
As internet shopping plays catch up with regional peers further north, we
earnings potential for last-mile
expect postal volumes at Asean courier players to triple by 2020F (giving a delivery players.
five-year CAGR of 23%). Improving economies of scale on such volumes
mean we forecast higher three- and five-year earnings CAGRs for the four Nomura vs consensus
couriers on which we initiate in this report, at 21-43% and 19-30%, Our earnings for Pos Malaysia
respectively. and SingPost are well above
consensus (by 8% and 30%,
North Asia’s thirst for Asean internet players.
respectively) as we are more
We estimate Asean’s overall online retail sales (both C2C and B2C) will post a
bullish on volume upside and
five-year CAGR of 34% to hit USD36.1bn by 2020. Such outsized growth has economies of scale potential.
not surprisingly sparked interest among the regional internet heavyweights.
Alibaba has invested USD1bn for a majority stake in Singapore’s Lazada, and Research analysts
Japan’s Softbank is expanding further with Tokopedia (Indonesia’s leading
online mall), in which Softbank started investing in 2012. The last-mile delivery ASEAN Transport/Logistics
players have not been far behind, with some sizeable acquisitions from both
Ahmad Maghfur Usman - NSM
Japan (Yamato Holdings bought a strategic stake in GD Express) and Korea [email protected]
(CJ Express acquiring a strategic stake in Century Logistics). [phone]
Riddhi Jain - NSFSPL
Action: Bullish view on the sector with all Buys. Singpost as top pick.
[email protected]
We initiate on the sector with a Bullish view, and four Buy calls. We introduce [phone]
a valuation framework to identify whether higher implied P/Es are justified by
superior cash ROIC vs WACC spreads. Overall, SingPost is our top pick,

given strong earnings growth (three-year CAGR of +21%) driven by logistics

and ecommerce fulfilment segments. We note an attractive implied P/E over

its cash ROIC-WACC spread (at 2.4x, vs the sector’s median of 2.5x).
Investment thesis on other names also compelling.
LBC Express offers a compelling combination of both cheap valuations and
strong earnings prospects, on the back of the strong macro story in the
Philippines. GD Express could emerge as a formidable Asean logistics player,
as it embarks on regional expansion, likely into Indonesia, possibly together
with its strategic shareholder, Yamato Holdings. We also like Pos Malaysia, as
we see cost and revenue synergy opportunities following the acquisition of
KLAS Group, a formidable local integrated logistics provider.
Our pecking order is SingPost, LBC Express, GD Express and Pos Malaysia.

Fig. 1: Stocks for action
Company Code Rating Mkt Cap Avg. TO Target Price Upside
(USD mn) (USD mn) Price 4-Oct (%)
LBC Express LBC PM Buy* 323 0.00 PHP17.05 PHP10.92 56%
Singapore Post SPOST SP Buy* 2,361 7.70 SGD2.11 SGD1.50 41%
GD Express GDX MK Buy* 584 0.10 MYR2.21 MYR1.74 27%
Pos Malaysia POSM MK Buy* 715 1.58 MYR4.85 MYR3.77 29%
Source: Bloomberg, Nomura Research, * Initiating coverage

See Appendix A-1 for analyst certification, important disclosures and the status of non-US analysts.
Nomura | Asean logistics 6 October 2016

Contents

Executive summary ................................................................................ 3
The pecking order: our fundamental scoring framework ....................... 12
Industry overview ................................................................................. 20
An overview of the postal industry, then and today ............................... 24
Asean’s postal and courier industry ...................................................... 26
Market dynamics .................................................................................. 30
Terminal dues ....................................................................................... 33
Fighting for transhipment market share ................................................ 38
How technology is changing landscape ................................................ 39
Robocars and drones… ........................................................................ 45
The current dynamics of Asean retail e-commerce ............................... 47
Asean e-commerce behaviour characteristics ...................................... 58
The Japan angle ................................................................................... 62
Asean offers solid footing for FDIs ........................................................ 65
North Asia’s thirst for Asean’s potential piece of the pie........................ 68
Cost composition: best to stay focused on a single business structure . 71
Singapore Post ..................................................................................... 74
LBC Express Holdings Inc .................................................................... 87
Pos Malaysia Berhad............................................................................ 97
GD Express Carrier Bhd...................................................................... 111
Appendix A-1 ...................................................................................... 125

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Nomura | Asean logistics 6 October 2016

Executive summary
Asean internet retail outlook
Riding on the increasing propensity to spend online, we estimate that Asean’s online
retail sales (both C2C and B2C) will show a five-year CAGR of 34% to hit a total of
USD36.1bn by 2020. Asean’s B2C retail market is still at its nascent stage, at only 1.2%,
vs Japan’s 7.2% and China’s 13.8%, as estimated by Euromonitor (Fig. 3), suggesting
further upside growth potential for ecommerce.

Fig. 2: Estimated size of internet retail (B2C and C2C) by Nomura (USDbn)

Nomura's estimation of internet retail (including C2C) in ASEAN (LHS)
(USDbn) % chg y-y (RHS)
40,000 % of internet retail to total retail sales (RHS) 36,155 45%
35,000 40%
30,000 27,811 35%
30%
25,000
20,755
25%
20,000
15,374 20%
15,000
11,140 15%
10,000 7,905
10%
5,000 5%
0 0%
2015F 2016F 2017F 2018F 2019F 2020F

Source: Nomura research, various news media, Euromonitor

As plotted below (Fig. 4), we observed that the frequency of visits to shopping websites
in Asean remains relatively low compared to Japan and the US. While China has a high
value of ecommerce retail sales relative to total sales (at 13.8%), its frequency of retail
site visits per internet user is much lower than in Singapore, given its massive population
base. This too suggests more upside, not only for Asean but also China as well,
particularly in rural areas. We think China’s higher internet retail penetration rate (at
13.8%) is more likely pushed up by the urban population generating higher GMV per
user.

Fig. 3: Ecommerce as a percentage of total retail sales Fig. 4: Asean ecommerce is still at its nascent stage
Asean has still a lot more room to grow its online retail penetration
12
China 13.8%
USA 9.2% per 10 Japan USA
Japan 7.2% sit
vi
e 8
SIniTndhgoaanipleaosnriaed 11.2.6%% 4.1% of retail siternet user 6 Singapore
y nt Indonesia
ASEAN ex Sing. 0.7% nci 4
e Thailand
u
Malaysia 1.0% q Malaysia
Vietnam 0.8% Eofc roemtamil esraclee ss a(2le0s1 5a)s a % Fre 2 PhiVlipieptninaems China
Philippines 0.5% 0
0% 5% 10% 15%
0% 5% 10% 15% Ecommerce sales as a % of retail sales
Source: Euromonitor, Nomura research Source: Nomura research, Euromonitor, Statista, Similiarweb

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Nomura | Asean logistics 6 October 2016

Fig. 5: Online shopping frequency quadrant Fig. 6: Frequency vs ARPU quadrant

10 1,800
0) 9 USA 1,600 USA
$ '00 8 Japan 1,400
a ( 7 $)1,200
capit 6 PU (1,000 Japan
per 5 AR 800
s 4 Singapore China
e
al 600
S 3
Retail 12 China ThaMiIlanaldnaodynseiasia 240000 PhilippinTehsailaInnddonesia Singapore
0 PhilippinesVietnam 0 VietnamMalaysia
0 5 10 15
0 2 4 6 8 10 12
Frequency of online shopping visits per internet user Frequency of online shopping visits per internet user
Source: Nomura research, Statista, Similiarweb Source: Nomura research, Statista, Similiarweb

We also explain in detail the demand and supply dynamics of online retail in Asean,
including comparisons between consumer behaviour with developed economies, the top
players in each market, and omni-channel characteristics, among other things. We
derive lessons from Japan’s online retail segment history about how with mature
demographic structures and increasing per-capita income, people prefer convenience
over costs. In summary, we note that online retail still has strong potential upside to be
routinely instilled into the daily lives of Asean’s population, driven by its young
demographic appeal and rising spending propensity.
Bullish on parcels
While Asean’s post and parcel numbers are nowhere near the billions of postal mails and
parcels handled in Japan and the US, they suggest a similar story (Fig. 7). With surging
internet and smartphone penetration and higher online spending propensity, we foresee
Asean’s parcel size to see a CAGR of 23% by 2020, from 396mn to 1,104mn (Fig. 8).
We estimate both Vietnam and Philippines will see the highest growth rates over the next
five years, within Asean.
The revenue opportunity for courier players should double to USD7.54bn by 2020, from
the current USD3.69bn in 2015 (a 15% CAGR over 2015-20). The main driver of this
revenue growth will be contributed by online shopping. We forecast ecommerce
shipment revenues translating to 7-8% of total online retail sales / GMV (Fig. 9).
On the improved economies of scale from the higher volumes handled, we expect the
incremental earnings for courier players to grow — we forecast four of the companies in
our new coverage to post three- and five-year earnings CAGRs of 21-43% / 19-30%.
Although we expect all last-mile players to benefit from this growing revenue potential,
we believe cost efficiencies will prevail to win sizeable business. Those with economies
of scale, which can effectively enable them to compete on a low-cost structure, will
continue to win sizeable market share over the years to come.

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Nomura | Asean logistics 6 October 2016

Fig. 7: Average parcels per urban population received Fig. 8: Parcel / express item delivery volumes (mn)
# of 2014 2015 2016 2017 2018 2019 2020
consignments
USA 55.1 (mn)
Malaysia 56 59 69 80 93 107 1 22
China 48.3
Singapore 33 35 40 46 52 58 6 5
Japan 87.2 Indonesia 126 153 207 273 328 377 4 34
ASEAN 5.6 Vietnam 25 29 40 55 73 90 1 03
2.6
Philippines 45 54 76 103 136 169 1 95
Thailand 8.2
3.8 Thailand 55 65 88 116 140 161 1 85
Philippines 5.0 ASEAN 341 396 521 673 822 962 1,104
1.6
Vietnam 3.9
1.4 % chg y-y 2015 2016 2017 2018 2019 2020 CAGR
Indonesia 5.1 Malaysia 6% 17% 17% 16% 15% 13% 16%
2.3
Singapore 9.8 2020 Singapore 6% 15% 14% 13% 10% 11% 13%
6.1 Indonesia 22% 31% 24% 22% 15% 15% 23%
Malaysia 7.7 2015 Vietnam 14% 25% 24% 22% 20% 18% 29%
4.7
Philippines 20% 30% 35% 33% 24% 15% 29%
Source: Nomura research, Universal Postal Union, Postal statistics, National
Thailand 18% 25% 24% 20% 15% 15% 23%
statistics, Company data, World Bank, Demographia
ASEAN 16% 32% 29% 22% 17% 15% 23%
Source: Nomura research, UPU, Postal statistics, National statistics, Company data,
regulatory bodies

Fig. 9: Overview analysis of the parcel and express revenue pie

2015F 2020F CAGR (2015-2020)
Volume
Traditional 238 276 3%
Ecommerce 158 828 39%
Total volume 396 1,104 23%
Volume mix
Traditional 60% 25%
Ecommerce 40% 75%
Average revenue per shipment (USD)
Traditonal 13.2 16.8 1%
Ecommerce 3.5 3.5 0%
Effective average 9.3 6.8 -6%
Revenue (USDbn)
Traditonal 3,137 4,646 8%
Ecommerce 554 2,892 39%
Total 3,690 7,538 15%
Revenue mix
Traditional 85% 62%
Ecommerce 15% 38%
Total online transactions (B2C & C2C related) (USDbn) 7,905 36,155 36%
Delivery cost to total transaction value 7% 8%

Source: Nomura

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Nomura | Asean logistics 6 October 2016

Asean – The focus for Asian investors
Among the internet juggernauts, Alibaba has invested USD1bn for a majority stake in
Lazada, and Japan’s Softbank is embarking on further expansion with Tokopedia
(Indonesia’s leading online mall), where they started investing in 2012. This provides
opportunities for last-mile delivery players, where we have also seen some sizeable
acquisitions in Asean by the biggest names in last-mile delivery from both Japan
(Yamato Holdings acquiring a strategic stake in GD Express) and Korea (CJ Express
acquiring a strategic stake in Century Logistics (CLH MK) looking to tap into Asean’s
growth story.
Judging from the trail of acquisitions Yamato has made over the past year in Asean, it
certainly looks like the courier player aims to have first-mover advantage and a bigger
presence in Asean’s last-mile delivery ahead of the impending AEC integration and the
TPP agreement, which should foster cross-border trade. Yamato’s expansion into cross-
border trucking certainly makes an appealing case for China’s cheaper last-mile delivery
reach into Asean.
There’s no doubt that establishing a scalable Asean-wide operation can be challenging,
given its unique individual country policies, and partnerships with local players. But these
acquisitions and the continued interest from investors shows that investors are not willing
to hold back, and the story has just begun.

Fig. 10: Yamato and CJ Express acquisitions (last-mile / cross-border logistics focus)

Yamato Holdings' ASEAN expansion
2010 Started providing delivery services in Singapore
2011 Started providing delivery services in Malaysia
19-Dec-13 Established a regional HQ for South East Asia in Singapore
26-Mar-14 Started cross border delivery services (next day services) between Singapore and Malaysia.
10-Jul-14 Acquires 85% share in Tidiki Express to become a subsidiary company. The capital base of Tidiki Express is SGD210,000.
12-Feb-15 Formation of Yamato Logistics Vietnam with a capital base of USD3.2mn
9-Apr-15 Establishment of Asia Business-Model Innovation Centre in Singapore
24-Jul-15 Launched fresh seasonal products delivery from Japan to Singapore
8-Jan-16 Ties up with ANA Cargo to be the last mile provider for Isetan Singapore's online business
Establishes a business collaboration and acquires a stake in GD Express. The acquisition was done through a placement exercise and buying
21-Jan-16
over a portion of Singpost's stake. Total deal exercise is approximately MYR549.8mn for a ownership of 22.85% in GDEX.
23-Mar-16 Launched fresh seasonal products delivery from Japan to Malaysia
Establishes a collaboration to provide last mile delivery with Siam Cement Group where Yamato will have a 35% stake. Capital base is
25-Aug-16
THB633mn
31-Aug-16 Acquires Overland Total Logistics, a cross border trucking company with a line haul network spanning from Singapore to China (6,000 km)
Recent sizeable acquistions by North Asia companies into ASEAN
8-Sep-16 Korea's CJ Express buys over 31.44% stake from founder. Deal valued at MYR174.8mn
Source: Company data, News releases

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Nomura | Asean logistics 6 October 2016

Fig. 11: Alibaba and Softbank’s acquisition trail (online shopping)

Alibaba's ASEAN expansion
Alibaba signed an MoU with Vietnam's Ministry of Industry and Trade, to promote the development of e-commerce and to facilitate
Jun-09
international trade for Vietnamese SMEs.
May-14 Alibaba buys 10.3% stake in Singapore Post for $249 million.
Alibaba collaborates with Kasikorn Bank of Thailand to help Thai SMEs looking for new customers to introduce their products to the e-
Aug-14
commerce marketplace.
Feb-15 Alibaba announced that AliExpress, has signed a strategic agreement with DOKU, Indonesia’s largest online payment provider
Alibaba teamed up with online service provider ReadyPlanet in Thailand, its first entrance into the Thai market. ReadyPlanet will become
May-15
Alibaba’s first Thai reseller, likely to boost the small- and medium-sized business community in the nation.
Alibaba announced another investment round in Singapore Post in July 2015, for additional 5% stake. This deal has been delayed thrice
Jul-15
since, expected date of completion is October 2016.
Aug-15 Alibaba in partnership with Softbank and Foxconn, invested $500 million in Snapdeal, an online marketplace in India.
Sep-15 Alibaba and affiliate Ant Financial invest $680 million in indian etailer Oaytm, becoming largest shareholder with 40% stake.
Apr-16 Alibaba buys a controlling stake in Singapore-based e-commerce platform Lazada for $1 billion.
Sep-16 Lazada gears up for deeper penetration in ASEAN by investing in logistics and payment systems.
Without disclosing specific plans, Alibaba announed it will boost investment and development in ASEAN, by participating in the
Sep-16
development of local small- and medium-sized enterprises and young people.
Softbank's ASEAN expansion
Jun-13 Softbank Ventures Korea invested an undisclosed amount in Tokopedia. This is the 5th round of funding for Tokopedia.
Oct-14 Softbank and Sequoia Capital invest $100 million in Tokopedia, the online marketplace startup in indonesia.
Dealoka, a mobile e-commerce app, received funding SB ISAT, a USD 50 million venture fund jointly established by Indosat, and
Feb-15
Softbank to target Indonesian growth-stage startups.
China’s Didi Chuxing and SoftBank Group are leading a new round of funding in South-east Asian ride-sharing service Grab that could top
Aug-16
$600 million.
Apr-16 Indonesia’s Tokopedia raised US$147 million from Softbank in the 7th round of funding.

Source: Company data, News releases
Stock recommendations
Given the strong earnings growth profile of the last-mile delivery players, we expect the
four players in our coverage to post three-year earnings CAGRs (2015-20) of 21-43%
(Fig. 12).
We rate SingPost as our top pick, as it still has an attractive implied P/E (on our TP) over
its cash ROIC-WACC spread ratio. This is a framework we introduce to identify whether
the higher P/E valuation is justified when considering its superior cash ROIC vs WACC
spread (discussed in more detail in another section).
Our pecking order is SingPost, LBC Express, GD Express and Pos Malaysia.

Fig. 12: TP and current price multiple valuations

WACC Current Currency Target P/E EV/EBITDA P/E over Cash ROIC WACC spread 3 forward year CAGR
applied Price (LC) Price (LC) Upside FY +1 FY +2 FY +3 FY +1 FY +2 FY +3 FY +1 FY +2 FY +3 EBITDA FCF Earnings
GD Express 9.2% 1 .74 MYR 2 .21 27% 5 5.8 4 4.0 3 5.7 3 6.7 2 8.2 2 2.3 3 .1 2 .1 2 .5 26% -11% 24%
LBC Express 10.2% 1 0.92 PHP 1 7.05 56% 1 9.5 1 6.1 1 3.5 1 0.7 8 .4 6 .4 1 .5 1 .0 0 .7 27% 78% 33%
Pos Malaysia 8.1% 3 .77 MYR 4 .85 29% 2 6.3 1 6.7 1 4.9 9 .6 6 .5 5 .8 9 .1 2 .7 2 .5 40% -40% 43%
Singapore Post 7.3% 1 .50 SGD 2 .11 41% 2 1.1 1 7.0 1 3.1 1 4.7 1 2.0 9 .6 5 .7 2 .9 1 .5 21% -191% 21%
Average 3 0.7 2 3.4 1 9.3 1 7.9 1 3.8 1 1.0 4 .9 2 .2 1 .8 28% -41% 30%
S ource: Nomura research, Company data

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Nomura | Asean logistics 6 October 2016

Fig. 13: LBC Express scores highly on our scoring. Followed Fig. 14: The plotted quadrant
by SingPost

Implied average forward P/E over Cash ROIC -WACC
Implied P/E over Cash ROIC - 3.0 spread (FY +2 to FY+4) Pos
WACC Spread Average Malaysia GD
Score FY +2 FY +3 FY +4 FY +5 (FY+2-FY+5)
Express
GD Express 2.8 3.0 3.6 2.5 1.6 2.7 2.5 Thelower the
LBC Express 3.0 1.6 1.1 0.8 0.5 1.0 forward P/E over Singapore
Pos Malaysia 1.8 3.5 3.2 2.4 2.1 2.8 2.0 Cash ROIC -WACC Post
Singapore Post 2.5 4.4 2.3 1.7 1.2 2.4 spread, the cheaper
Median 2.6 3.2 2.7 2.0 1.4 2.5 the stock is.
1.5
Source: Nomura research, Company data Our 2 top picks

1.0 LBC
Express
0.5
Maximum fundamental score is 4.0 points. The higher the better
0.0
0.0 1.0 2.0 3.0 4.0
Fundamental framework score (5-year forward horizon)
Source: Nomura research, Company data

Singapore Post
We choose SingPost as our top pick for three reasons: 1) Strong volume growth,
supported by surging ecommerce retail demand, especially since SingPost is located at
the intersection of Asean trade in geographic terms. 2) Its massive scale and impeccable
infrastructure give it an edge over competitors, driving it further in exploiting the
opportunities offered for the last-mile delivery segment. 3) Consolidation synergies from
recent acquisitions such as Trade Global and Jagged Peak should kick in, with the group
entering integration phase this year, propelling overseas revenues (currently 44% of
total). We see the partnership with Alibaba and its subsidiary Lazada as a big positive for
the company as well. SingPost has landed at the right place, at the right time, with the
right capabilities.
Our TP of SGD2.11 is derived by DCF (WACC of 7.3% and TG of 1.8%), implying a
FY18F EV/EBITDA and P/E of 17x / 26x respectively, higher than the three-year
historical averages of 14x / 20x (reflecting its current valuations too). We think the stock
deserves higher valuations, given the steep earnings growth (five-year CAGR of +19%)
driven by the logistics and ecommerce fulfilment segments coupled with its recovering
ROEs (+20% by FY19). Initiate at a Buy.
LBC Express
LBC Express is naturally the default postal provider in Philippines, given its nationwide
and global coverage. The Philippines is an under-penetrated market, both in terms of
banking and internet retail. LBC Express offers the most compelling case, with a
combination of both cheap valuations and strong earnings prospects (five-year earnings
CAGR of 28%) and an impressive cash ROIC potential upside on the back of the
Philippines’ favourable macro-economic growth and its underpenetrated online shopping
participation. The courier company already has Lazada as one of its biggest corporate
accounts, which is seeing strong growth. We initiate with a Buy call premised on a DCF-
based valuation of PHP 17.05, implying an FY 2016F EV/EBITDA of 17.7x and PE of
33x.

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Nomura | Asean logistics 6 October 2016

GD Express
GD Express is the only pure courier play in our Asean last-mile coverage. It is also the
smallest by size (revenue and earnings). Its operational merits centre on its very optimal
capital and cost efficiencies, given its cost prudence. GD Express has seen its share of
B2C ecommerce clients growing over the past four years, since Lazada came in, which
now forms 30% of its total revenue (from 10% back in FY14).
Last year, the courier provider suffered some capacity bottlenecks, as a result of which
top growth slowed to 12% y-y, from 24% in FY15, ultimately capping the earnings upside
(FY16 EBITDA: +12.4% y-y vs +23% in FY15).
This issue has now been addressed, with the conversion of its unutilized land bank
(previously for a staff car park) as an extension to its existing sorting centre hub,
enabling them to bump up capacity from 78k consignment sortings daily to 100k daily
(+28.2%). Longer-term plans are also in place to seek new landbank for expansion. We
initiate with a Buy on the stock with 27% upside with a DCF-derived TP of MYR2.21
(after dilution of warrants). The stock will continue to fetch lofty P/Es, which we think are
justified given its superior cash ROICs (even against its WACC) and cost efficiencies.
GD Express could also potentially emerge as a formidable Asean logistics player as it
embarks on regional expansion, likely into Indonesia, possibly together with its strategic
shareholder, Yamato Holdings.
Pos Malaysia
Pos Malaysia is Malaysia’s postal provider. Suffering the same fate on the decline in
traditional mail, the postal provider leads with highest market share in the parcel and
courier delivery business due to its pricing affordability.
We also see cost and revenue synergy opportunities following the acquisition of KLAS
Group, a formidable integrated logistics provider with operations in air cargo, trucking,
haulage as well as airport-related services. The low-hanging fruits on synergy potential
from both revenue and costs will be centred on integrated supply chain fulfilment. This
brings a valuable supply chain proposition for clients, whereas Pos Malaysia was
previously only serving the last-mile portion.
We think consensus has yet to fully factor in the merged entity’s earnings potential,
where our FY17-19F earnings are 38% / 72% / 58% above consensus. Despite the
strong run in the price, we believe this stock is still poised for a re-rating. We initiate the
stock with a Buy with a TP of MYR4.85, which implies 26% upside potential.

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