CJ Express heads into the second half on a solid footing

CJ Korea Express, South Korea’s largest logistics company, reported a solid second-quarter trading update last week.

Its latest figures broadly confirmed the trends we witnessed earlier this year as well as at the end of 2015, with reported revenues, gross profit, pre-tax income and net earnings all up year-on-year, which clearly indicates that its core business lines continue to deliver on their promises.

Group sales hit KRW1.5 trillion, up 19.5% year-on-year, while gross profit rose 27.4% to KRW170.5bn due to a lower growth rate for cost of goods sold. Operating income was up 33.6% to KRW59.7bn, with pre-tax profits and net earnings surging the most, up 194% and 504%, respectively, year-on-year.

Receivables rose and so did payables against year-end figures, but higher gross cash balances and rising borrowings should mitigate any possible negative impact stemming from working capital management, at least over the short term, although its funding strategy deserves attention.

Its main revenue driver, contract logistics (CL), saw revenues rise 8.1% to KRW585.5bn from KRW541.5bn one year earlier, with gross profit up 9.5% to KRW69bn and gross profit margin coming in some 20 basis points higher year-on-year.

Diversification helped its contract logistics division secure more orders, while consulting and software-based volumes increased, it noted. “Continued price hikes and cost cutting contributed a better margin,” it said.

Meanwhile, its “global” unit grew at a steeper rate due to the consolidation of CJ Rokin, which was acquired at the end of 2015 and consolidated from 1 January.

Its revenues reached KRW481.4bn, up 39.8% year-on-year, yielding a solid growth rate for gross profit as well as rising margins. Strategic accounts and business-to-consumer volumes increased in south-east Asia.

The company’s aim for the division remains to “maximise the synergies with CJ Rokin, CJ Smart Cargo and CJ Speedex”, and it plans to continue to expand its global network. In this context, it recently announced that it has agreed to set up CJ Speedex, a delivery services firm, with China’s TCL Group.

Acquisitions are likely to continue to be on its radar, and it is also possible that CJ Express will similarly target inorganic growth to boost its parcel division, where it said it is preparing “for a rapid volume hike” by developing “optimised delivery networks” and “sorting system to accelerate market consolidation” in order to secure a “dominant position” in the market. Parcel sales rose 17.3% to KRW446.7bn, while gross profit was up 32.7% to KRW52bn.

Quarterly capital expenditures rose in line with its annualised projections for 2016 across all divisions.

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Source: Transport Intelligence, August 9, 2016

Author: Alessandro Pasetti