We believe the new courier licensing framework will pave the way for consolidation in future and eventually reduce the number of players in the industry. At the same time, we reckon current industry players will gear up to keep abreast with the new structure and strive to provide better service for consumers. With accelerated growth in digital platforms and online shopping, we believe the new framework will complement with new norms of consumers and increase the penetration of digital platform and online shopping among Malaysian especially in rural areas.

We organised a conference call with GDEX Bhd to update us on the latest development regarding the new framework of courier licensing of MCMC. Below are the key takeaways:

Proposal of New Licensing Structure. To recap, MCMC unveiled 8 initiatives under PAKEJ (see Figure #1) aiming to deliver first class courier service to all Malaysians seamlessly to support the projected e-Commerce industry growth from 14 parcels per capita in 2020 to 30 parcels per capita by 2025. On Initiative #6, MCMC has proposed to revise the licensing framework to ensure licensees fulfil the national aspirations of reliability, reach, relevance and resilience. All licensees under the new licensing scheme shall be migrated into 3 new classes for courier service licence namely National (N)-Courier, Urban (U)-Courier and Incidental (I)-Courier to promote network sharing and seamless coverage. By default, all existing licensees will be migrated to U-Courier licence whilst the process for N-Courier will be done through an application process guided by the MCMC. New independent PickUp-DropOff (PUDO) players may apply under the normal process for I-Courier.

N-Courier. Under the N-Courier licensing condition, licensees are required to have a minimum paid-up capital of RM50m with majority of local equity requirement. Foreign shareholding, if any, shall not be more than 49% and exception may be given to a company listed on Bursa Malaysia. The benefits of being a N-Courier licensee includes 10 years of licence tenure, no parcel volume capacity restriction and no service network coverage restriction (but have to maintain/establish a min 95% of distribution/delivery branch in every district in Malaysia. N-Courier licensees also have to maintain a minimum of 5,000 Out-of-Home (OOH) Delivery Points within 3 years.

U-Courier. For U-Courier, paid-up capital for domestics’ courier service remains the same while for international service (inbound and outbound), a proposed new paid up capital requirement is increased to RM10m from RM1m with no shareholding restriction/ requirement. An existing licensee will be given time to comply within 3 years. Characteristics of U-Courier license includes 5 years of licence tenure, parcel volume capacity is restricted to less than RM50m parcels (not exceeding 2kg) annually and the number of distribution/delivery branch is limited to 50% of total districts in Malaysia.

I-Courier. I-Courier licence will have the lowest minimum paid-up capital of RM100k with no shareholding restriction/ requirement. The licensees will not have any special condition on annual volume handling limitation, while scope of services are limited to PUDO and other intermediary services such as p-hailing platforms (P-hailing services are defined as food, drinks and parcel delivery using motorcycles).

Towards a mature and sustainable industry. We are positive on the new licensing frameworks as we believe it will pave the way for more players’ consolidation in future. Smaller players that are unable to comply with the new structure will be forced to exit the market or integrate with other players and eventually reduce the number of competitors in the industry. Barriers to entry have also been increased to avoid uncommitted new competitors from coming in. We reckon this new structure will move the industry into a more mature stage of business cycle. Subsequently, companies with cost-efficiency strategies will be able to leverage on this to create more value to stakeholders.

More delivery presence for consumers. From consumers’ perspective, we believe the new framework will provide more extensive delivery coverage in Malaysia including the rural area. With accelerated growth in digital platform and online shopping, we believe the new framework will complement with new norms of consumers and increase the penetration of digital platforms and online shopping among Malaysian especially in rural area.

Impact on Pos Malaysia (HOLD; TP: RM0.86). As Pos is the only one that holds the status of universal service licence with widest coverage and invested capital in Malaysia, we do not foresee much changes on the new licence structure for Pos’ licence. However, we believe its courier business segments will potentially see additional income under these new initiatives from potentially lesser competition as well as better margin from a better pricing power in future. However, Pos’s near term outlook remains challenging dragged by its conventional mail and aviation business. Maintain our HOLD call with unchanged TP of RM0.86.

Impact on GDEX (Non-Rated; Last Price: RM0.33). We believe GDEX will fit the NCourier licensing criteria as the company has met the minimum requirement of paidup capital RM50m and the majority of local equity requirement. The company currently has c.1,000 points and is targeting to reach another 4,000 points within 3 years. In term of distribution/delivery branch, GDEX currently has 67% presence in Malaysia and will need approximately 40 new branches/agents to meet the requirement. Management indicated that adding new branches/agents is not a problem for them and it should take them about 2-3 years to achieve. As GDEX is one of the rare companies that are profitable in this cut-throat industry (thanks to its cost efficiency management), we believe the new licensing framework will strengthen the Group’s current core business and provide the company with opportunities to expand the Group’s business portfolio to accelerate their growth. GDEX is in the midst of offering new products (under new digital platform MyGDEX) aimed at providing more comprehensive digital solutions for customers to provide continuous improvement in last mile logistics service quality

Source: Hong Leong Investment Bank Research - 27 Jul 2021