Pos Malaysia can expect to see cost savings and potentially additional income from the 5-year PAKEJ programme which includes sharing of asset and postmen/rider among the different courier players. PAKEJ also aims to improve the quality of services provided by logistic players to ensure the industry remains competitive and consumers receive high quality service . However, we believe that these initiatives will go through a gestation period before contributing positively in the long run. Pos’ near term outlook remains challenging dragged by its mail and aviation business. Maintain our forecast and HOLD call with unchanged TP of RM0.86.

Below are key takeaways from MCMC’s analyst briefing unveiling the Pelan Accelerator Kurier Negara (PAKEJ):

PAKEJ. MCMC chairman, Dr Fadhlullah Suhaimi Abd Malek said PAKEJ aims to revitalise and sustain the courier industry. Consequently, PAKEJ serves as KPI/benchmark for courier players to improve their quality of service that has been declining (delivery times increased from 2.1 to 4.6 days during lockdown and 86% complaints on poor service, late delivery and missing/ damaged parcels). This is on the back of the pandemic driven online shopping mania which has resulted in the number of packages delivered per capita to double from 7 packages in 2019 to 14 in 2020. PAKEJ comes with initiatives that include:

• Setting up shared parcel point network of Pick-up and Drop-off (PUDO) to lower capital and operating costs of courier players.
• Asset collaboration in Posmen Komuniti through sharing of postmen across different service providers to expand network coverage and lower operating costs for courier industry players. Subsequently, improving the livelihood for the Posmen Komuniti.
• Parcel Commercial Vehicle Enhancement Proposal aim to deploy new 3- wheeled electric vehicles to address the issue of overall delivery volume and packages sizes that are too big for motorcycles yet too small for courier vans to deliver.
• Promoting digital transformation to support industry sustainability through available grants and incentives to qualified players.
• Establishing self-regulated QoS standards to ensure the industry remains committed for service delivery standards despite being competitive and protecting consumers’ interest.
• Revisiting licensing framework to ensure service providers strive to meet standards set by regulator.
• A holistic digital infrastructure of courier coverage areas for granular visibility.

Promotes operational cost saving. Shared parcel network and postmen sharing initiatives appears to be promising as we believe aforementioned areas are the key large fixed cost that has been hampering the profitability of courier players. We reckon the effort to centralise the asset will be challenging as each courier player has different cost structure and capacity. Nonetheless, we believe it may lead to industry consolidation in future which paves way to operational efficiency and profitability. Notably, MCMC mentioned that courier companies have seen revenue growth stagnated despite higher courier volume in past years due to increasing competitive pricing. Only a small percentage of the 126 courier players are profitable while others remain in the red.

To protect consumers and provide better service. Other than that, MCMC highlighted that they will not interfere with pricing strategy for these courier players (i.e. MCMC will not set a floor price). We believe this move is in favour to protect consumers especially low income group. While there could be some industry players that will try to capture market share by lowering its price, we reckon that this strategy will not be sustainable as they may find it difficult to keep up with service level agreement (SLA) targets. The regulator indicated that customers will be entitled for compensation if there is failure to meet the SLA.

Impact on Pos Malaysia. As the biggest courier provider with large fixed cost, Pos Malaysia may see some cost saving and potentially additional income under these initiatives. However, we believe that these initiatives will go through a gestation period before contributing positively in the long run. Pos’ near term outlook remains challenging dragged by its mail and aviation segment.

Forecast. Maintain our forecast as we believe these initiatives will only contribute on longer term as mentioned above.

Maintain HOLD, with an unchanged TP: RM0.86 based on a P/B multiple of 0.65x on FY21 BVPS of RM1.32 (at -1SD below its 3Y mean of 1.17x) as near term outlook remains challenging especially for its aviation segment.

Source: Hong Leong Investment Bank Research - 18 Jun 2021