Special Report: Three years to deliver Pos Malaysia turnaround

https://www.theedgemarkets.com/article/special-report-three-years-deliver-pos-malaysia-turnaround

This is a very interesting article everyone who invests in POS Malaysia must read. The CEO has been hiding behind his CEO office since he took over in October 2018. 10 months on, he finally broke his silence and lays out his restructuring plan for POS Malaysia. 

According to the article from The Edge Malaysia, POS Malaysia has 530k parcels processing and delivery capacity in Malaysia today. POS Laju (the courier service) is processing and delivering 500k parcels a day. It is a well-known fact that e-commerce penetration will only keep going up over the next 3 - 5 years. The CEO is targeting to increase their courier services daily processing capacity to 1 million a day, once their digitalisation upgrades completes by Mid-2020. 

Many investors would take his statements negatively towards the share price given that he only expect POS Malaysia to turn profitable by 2021. Do note that he also mentioned that POS Malaysia has already embarking on a transformation plan since last year by upgrading its IT system to digitalise every process and the new system will be ready by mid-2020, which is 10 - 12 months away. 

If you have even studied the meteoric rise of China Logistics Industry since early 2010's, you would know for a fact that losing money for any logistics company in the early days is a very POSITIVE signal. Building up logistics network not only requiring CAPEX investment into more warehouses, distribution centers, it also requires the company to expand their workforce to cater to rising parcels delivery volume. There is no way you can grow your logistics business and at the same time not losing money. 

SF Express is one of the largest courier delivery company in China. The company now owns a fleet of airplane to help shorten the delivery time. During its aggressive expansion period by buying many airplanes to facilitate its parcel delivery business 5-10 years ago, the company barely make decent profit margin. If you study the history of FedEX and DHL, both companies went through the painful process of invest first, make money later process. 

When DHL founder came out with his brilliant business idea of setting up premium courier delivery services, his idea was laughed by many business school professors. 50 years later, DHL founder has the last laugh. 

Let me tell you why i think POS Malaysia is so valuable. It is impossible for any of its 100+ courier services competitors to replicate POS Malaysia's extensive distribution network in Malaysia. 

POS Laju has 78 offices across Malaysia. POS Malaysia, the dwindling traditional mail services has over 700 postal offices in Malaysia. Assuming the 700 postal offices cost RM 1 million each to build a new one, and the 78 POS Laju offices costs RM 2 million each to build a new one. The total CAPEX requires to build up an extensive coverage network would be RM 856 million. 

POS Malaysia has 23,000 workforce natinowide. Assuming POS Malaysia pays them RM 1,500 a month, your annual salary for these 23,000 hardworking delivery staff would be RM 414 million. Just imagine you have RM 2 billion in your bank account and you want to invest all of it into building a logistics services provider to serve the largest e-commerce platforms in Malaysia. First year, you would need to spend RM 856 million in CAPEX and spend another RM 414 million to hire employees to run the operation. Then you are left with RM 700 million to pay for other IT system, or cloud computing based logistics monitoring system. Of all the basic necessities i mentioned above, i have not included the two sorting centers POS Malaysia already has. One in Shah Alam and another one in KLIA 2. Are you able to purchase another piece of land to build sorting centre in KLIA 2???

To replicate POS Malaysia delivery business, it takes billions of Ringgits to do it. 

No doubt POS Malaysia had many troubling past since 2011. But, bear in mind that POS Malaysia Market Capitalisation is only RM 1.3 billion. 

All financials are very bad. No doubt about it. What is not reflected in the financial statements is the economic moats POS Malaysia business has built over 100 years period. 

US Postal Services is one of the largest delivery service provider to Amazon. If that model can be replicated in Malaysia, i can't see why POS Malaysia will not be the biggest e-coomerce delivery service provider in Malaysia in the long run.