KUALA LUMPUR: The local parcel delivery market may be saturated, but CJ Korea Express — which last month acquired 31.44% of Century Logistics Holdings Bhd — is seeking to make inroads in Malaysia by replicating its South Korea business model here.

CJ Korea is the largest parcel delivery player in South Korea with a 40% market share as at end-2015, and is listed on the South Korean exchange with a market capitalisation of 4.8 trillion won (RM17.9 billion).

CJ Korea Express vice president for strategy planning Ahn Jae-Ho said the group intends to expand parcel delivery service in terms of coverage, customers and vertical industries by combining both companies’ capabilities such as CJ Korea’s TES (technology, engineering, system and solution) and expertise in parcel delivery business and Century Logistics’ nationwide network as well as branding.

“Immediately upon the signing of the agreement on Sept 8, Century and CJ commenced planning in order to expand the parcel delivery service as soon as possible,” said Ahn.

Currently, Century Logistics, Malaysia’s largest logistics firm, is not providing parcel delivery service.

For the six months ended June 30, 2016, its largest earnings contributor was its total logistics services segment with a revenue of RM127.7 million, while procurement logistics services contributed RM25.2 million.

Century Logistics’ total revenue during the period rose 2.64% to RM152.1 million from RM148.2 million a year earlier. Net profit however fell 49.2% to RM9.88 million from RM19.5 million, due mainly to a gain on disposal of its commercial land in the previous period.

Edwin Yap, executive director of Century Logistics, shared with The Edge Financial Daily that the group had earlier submitted plans to build a three-storey warehouse without including a parcel operation. But with the emergence of CJ Korea as its main shareholder, the warehouse will be adjusted to operate as a delivery centre.

Ahn said it is too early to make any reasonable prediction regarding the group’s market share in the local parcel delivery business, but he is confident of its expertise and experience, which is demonstrated by CJ Korea’s dominant market position in South Korea.

One of the key strengths of CJ Korea is the technology it uses, and this could give Century Logistics a competitive edge in a saturated market that is labour-intensive.

Recall that at the end of last year, Japan’s Yamato Holdings’ wholly-owned unit, Yamato Asia Pte Ltd, acquired local courier player GD Express Carrier Bhd. Listed on the Tokyo Stock Exchange with a market capitalisation of ¥966 billion (RM38.99 billion), it is the number one parcel delivery company in Japan with a market share of 45.4% in financial year 2015.

The parcel delivery business has been riding on the momentum of the booming e-commerce in Malaysia. According to a study by A T Kearney together with the Malaysia Digital Economy Corp, Malaysian e-commerce is projected to grow at a 11% compound annual growth rate until 2020 but growth can be accelerated with focused interventions by the government through the National eCommerce Strategic Roadmap.

While the parcel delivery business appears lucrative with the projected e-commerce growth, the profit margin of the business is rather low with some even registering losses. Nationwide Express Courier Services Bhd recorded a loss of RM1.02 million in 2015 in its courier segment despite a revenue of RM90.2 million. Kangaroo Worldwide Express (Selangor) Sdn Bhd is another player that experienced two consecutive years of losses in 2013 and 2014, to the tune of RM5.35 million and RM2 million, despite posting a revenue of RM7.28 million and RM7.79 million respectively.

GD Express, in which Yamato holds a 22.84% stake, recorded a gross profit of RM40.3 million on the back of a RM213.9 million revenue under the express delivery service for the financial year ended June 30, 2016, representing a gross margin of about 18.8%.

Pos Malaysia Bhd, the largest local player, saw a gross margin of about 13.6% as it recorded a gross profit of RM23.7 million and revenue of RM174.3 million for the first quarter ended June 30, 2016.

CJ Korea is currently the world’s 17th largest logistics firm and aspires to become one of the global top five by 2020. On Sept 20, the group signed an international delivery service contract with Southeast Asia online retailer Lazada Group, which operates in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The group sees its acquisition of a controlling stake in Century Logistics as a step to tap the high growth potential in Southeast Asia.

While it is too early to tell if the South Koreans can transform Century Logistics into a dominant parcel delivery player in Malaysia, the acquisition certainly sends a signal to the rest of the competition.

Century Logistics shares closed one sen lower at 91 sen last Friday. This represents a 37.2% discount to the price that CJ Korea paid for its acquisition.

At 91 sen, Century Logistics is trading at a trailing price-earnings ratio (PER) of 15.4 times with a market capitalisation of RM353.7 million. In comparison, GD Express and Pos Malaysia are trading at a PER of 63.9 times and 28.4 times with a market capitalisation of RM2.32 billion and RM2.98 billion respectively.