Judging by CJ Korea Express’ growth strategy as well as preliminary fourth-quarter and annual results, announced in early February, the company appears to be well placed going forwards. However, there are a few caveats to consider.
South Korea’s largest logistics company said earlier this month that Q4 revenue rose 8.7% to KRW1.3 trillion (US$1.1bn). That growth rate was 0.8 percentage points below that of its cost of goods sold (COGS), which is an important detail in the light of recent trends for COGS and sales, and given that CJ Korea Express doesn’t break down its operating cost base.
Not only does rising COGS become evident on comparison of Q4 2015 financials with Q3 2015 figures but so too does COGS growth of 5.6%, which outpaced revenue growth of 5.3% quarter-on-quarter. Consequently, gross profit only marginally expanded. This resulted in pressure on its operating income which dropped almost 30% to KRW42.6bn ($35.7m) in Q4.
Annual results showed that revenue and operating income surged over 10% in 2015 but pre-tax profit fell 7% to KRW80bn ($67m). The company reported a net debt position of KRW1.3 trillion ($1.1bn) which implies trailing net leverage of about five times, based on certain assumptions for its adjusted operating cash flow, which was not disclosed.
The group is split into four divisions: contract logistics, parcel service, stevedoring and shipping, and ‘global’. Q4 revenue in contract logistics and parcel service rose nicely, up 7.5% and 17.9% respectively but the performance in stevedoring and shipping and global was less appealing.
CJ Korea Express states that its strategy across its four units is aimed at preserving its customer base as well as volumes whilst also developing new technologies and securing long-term relationships with its customers.
The company has stated it plans to double capital investment to KRW333bn ($280m) in contract logistics, parcel service, and global – and is looking for opportunities abroad in addition to that.
CJ Korea Express’ expansion overseas has recently targeted warehousing and distribution in China and Southeast Asia, which have been on management’s radar for about a year now. In September, it was reported that CJ Korea Express Corp, along with two other entities, would pay a total of about $382.2m (455bn won) to buy China’s Rokin Logistics”.
Based on most trading metrics, a steep growth rate is currently priced into its valuation on the stock exchange.
Source: Transport Intelligence, 11th February 2016
Author: Alessandro Pasetti