The share price of Kerry Express (Thailand) Public Company Limited (KEX) rose ฿1.50/share or 3.90% to ฿40.00/share as of 15:33 local time in Thailand, with a trading value of 202 million baht.
Maybank Kim Eng Securities (Thailand) (MBKET) stated that currently, the competition of express delivery service has intensified with ten players now (excluding product owners), but only Thailand Post and KEX are profitable. Parcel delivery is a need and should be inelastic but aggressive pricing has commoditized the services. More than ever the ability to keep the cost base nimble is paramount. Volume is not the issue, Frost and Sullivan projects 15% parcel growth in 2022. At 30% market share, KEX’s parcel growth is also 15%, MBKET base case. If entry into the economy segment raises its 2022 market share to 35%, its net profit could be 17% higher than MBKET’s based forecast. MBKET will revisit its assumptions when the new venture is rolled-out.
Moreover, the pandemic has catapulted e-commerce sales in Thailand (B2C) but also hobbled social ecommerce (C2C). Adding stiff competition RPP has dropped, but with its ALM KEX is profitable while competitors burn cash. With its over 2.0m units/day sorting capacity (+standby capacity), reliable and efficient service, KEX is well-placed to bag volumes. MBKET’s base assumption is c.50% CAPU, on average, though currently, post entry into the economy segment, there are more days when CAPU is double the average.
KEX will enter the cold chain segment as well as LTL delivery in 4Q21, replicating the CEP business strategy. KEX’s edge will come from its strong knowledge base and technical knowhow. It offers delivery solutions so producers can focus on product innovation especially now that customers demand new products more frequently.
Overall, MBKET sees a recovery in 2022 and projects a FY20-23 net profit CAGR at 10% pa excluding contribution from new businesses and assuming a conservative 30% market share, recommending a “BUY” rating on KEX with a target price of 45 baht (8.5% WACC, 5% G).