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Author: PublicInvest   |   Latest post: Mon, 23 Sep 2019, 9:36 AM

 

Yee Lee Corporation Berhad - Providing Supply Chain Services to Shell

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Yee Lee announced that YLTC Sdn Bhd, its 60% JV company with Tasco has locked a 3-year contract with Shell Malaysia Trading Sdn Bhd to provide supply chain services for Shell’s convenience retail outlets in Peninsula Malaysia. Overall we are positive on the news, as we see a wider revenue stream coming from Shell’s established petrol station network, allowing Yee Lee to reach a higher volume of end-consumers. Pending further clarification from management on the matter, we keep our earnings estimates unchanged at this juncture. Our Outperform rating is maintained with TP of RM2.58 unchanged, premised on FY19F sum-of-parts valuation. We continue to see growth potential in Yee Lee, coming from improved sales of brands under its distributorship, innovative marketing activities, introduction of new product ranges and exploring other trading opportunities.

  • Details. The contract will take effect from 1 October 2018, and terminate on 30 September 2021. Shell may however issue a 30-days’ written notice to extend the contract for another additional two years from 1 October 2021 to 30 September 2023.
  • In our view, this is a significant milestone achievement for Yee Lee, as Shell is well-known as having one of the largest petrol station chains in Malaysia. This would mean tapping into a bigger pool of consumers, especially through serving their high traffic stations. Consumer spending pattern at petrol chain retail outlets is also slightly different than other channels, as impulse buying is not unusual, thus the target consumers tend to be relatively less price-sensitive. Given Shell’s established network of petrol stations across Peninsular Malaysia, we trust that groundwork has been in place leading up to the signing of the contract, thus YLTC is expected to deliver the supply services as smoothly with minimal hiccups in the earlier period as it adjusts to Shell’s distribution patterns. We also believe that the JV with Tasco has allowed Yee Lee to enhance its trading and distribution expertise through deeper exploration into the networking of logistics services. In the near to medium term, the contract is expected to further boost Yee Lee’s trading and distribution revenue. If execution goes well, this would add positively to its portfolio as Yee Lee’s first venture into supplying to petrol chain retail outlets could open up doors to other petrol chains in the future. Overall we are positive on the news, and look forward to more developments on this new contract.

Source: PublicInvest Research - 14 Sept 2018

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