CJ Korea Express Delivers in Q1

The first-quarter results of CJ Korea Express confirmed recent trends, with the company growing more profitably year-on-year, helped by a rationalisation of its assets portfolio and acquisitions.

The South Korean company said on 4 May “robust growth” was “achieved by securing new orders and adding CJ Rokin”, which it acquired at the end of 2015 for about $400m.

Focus remains on efficiency measures and costs management, although its cash flow profile seems to be improving. A 22% growth rate in reported revenues compared with a 22.1% rise in costs of goods sold, but quarterly net profit surged on the back of “revenue growth and disposal of loss-making subsidiaries”.

The group doesn’t disclose its operating costs base, although it appears to be rising based on its reported operating income. Quarterly EBIT stood at KRW53.2bn ($45m), up 11.8% year-on-year. Meanwhile, pre-tax profit surged 56.6% to KRW28.5bn ($24.2m), while net earnings soared to KRW26.3bn ($22.3m), up 255% year-on-year.

Receivables, payables and borrowings all rose quarter-on-quarter since 31 December, while lowly cash balances were essentially unchanged during the period. Given its recent performance, it appears that its forward net leverage could fall below five times in 2016, assuming unchanged net cash balances and adjusted operating cash flow of KRW350bn ($300m), which is broadly in line with consensus estimates for 2016.

Its divisions – contract logistics, parcel service, stevedoring and shipping, and “global” – enjoyed mixed fortunes but remain on track.

Sales in contract logistics rose 11.9% to KRW568bn ($482m), with gross profit margin down 40 basis points to 12.3%. Cold chain and consulting volumes increased, while new orders were secured via “aggressive marketing”, the group said, which contributed to offset the loss in volumes stemming from “weakened industrial logistics market”.

Meanwhile, stevedoring revenue and profits “declined as Korea’s export and import volume weakened in 1Q”. While focusing on operational efficiency, the unit continues to target new clients and higher price.

The smaller parcel unit showed a solid growth rate in revenues and marginally higher gross margins. Key highlights were new orders and higher volumes, although “extra cost was required as a result of massive volume hike”.

It said that parcel utilization was “maximized by adapting flexibility on hubs and inline trucks”, while “pricing method improved by adopting the intelligent scanner system”.

CJ Korea Express is also investing to expand its global unit, while CJ Rokin was consolidated on 1 January.

Its market cap is down about 6% to about $4bn since it reported fourth-quarter results on 2 February.

Source: Transport Intelligence, 25th May 2016

Author: Alessandro Pasetti