This article first appeared in The Edge Malaysia Weekly, on April 4 - 10, 2016.

IS Pos Malaysia Bhd being slowly transformed into the land logistics arm of billionaire businessman Tan Sri Syed Mokhtar Albukhary? Consensus seems split, with one well-placed source suggesting that while there are proposals for Pos Malaysia to take over all the logistics companies under the various groups in his conglomerate, it is unlikely to happen anytime soon. However, in stark contrast, another source familiar with the tycoon confides that Pos Malaysia will eventually control all the logistics companies in Syed Mokhtar’s sprawling empire.

If the consolidation of the land logistics businesses under Pos Malaysia does happen, it would mean huge changes for the postal services company. It could end up controlling several large logistics companies currently held under various entities. Two such companies are Kontena Nasional Bhd (KN) and JP Logistics Sdn Bhd, which fall under MMC Corp Bhd, which is 51.76% controlled by Syed Mokhtar.

In fact, a recent proposal for DRB-Hicom Bhd to sell its KL Airport Services Sdn Bhd (KLAS), Hicom Indungan Sdn Bhd and Hicom Engineering Sdn Bhd to Pos Malaysia for RM818.35 million, is seen by some quarters as a move to get the ball rolling.

DRB is 55.92% controlled by Syed Mokhtar. The company, in turn, owns a 32.21% stake in Pos Malaysia.

To recap, KLAS has three main assets —DRB-Hicom Asia Cargo Express Sdn Bhd (Dhace, formerly known as Gading Sari Aviation Sdn Bhd), KLAS Engineering Services Sdn Bhd and Konsortium Logistik Bhd (Konsort), which is one of the largest haulage and transport companies in the country.

Of the three, Konsort registered a net profit of RM12.32 million on RM303.95 million in revenue for its financial year ended March 31, 2015, according to the Companies Commission of Malaysia (CCM). KLAS achieved a net profit of RM8.3 million on revenue of RM530.26 million, which shows that its key earnings generator is Konsort.

It is also worth noting that Konsort, as at end-March last year, had long-term assets of RM206.09 million and short-term assets of RM145.34 million. On the other side of the balance sheet, it had short-term debt commitments of RM172.38 million and long-term borrowings amounting to RM7.38 million.

“It [the merger] would create a giant … two of the companies, KN and Konsort, were part of the big five Cham (Container Haulage Association of Malaysia) members, before the industry was liberalised about 15 years ago … if you add JP Logistics to the mix, you’re talking about a huge company,” an industry observer says.

A check with CCM indicates that KN suffered a net loss of RM46.97 million on revenue of RM123.63 million in FY2014. As at end-2014, the company had non-current assets valued at RM334.68 million and current assets of RM70.06 million.

On KN’s balance sheet as at Dec 31, 2014, were RM181.67 million in short-term debt commitments and RM54.38 million in long-term borrowings.

JP Logistics chalked up a net profit of RM3.09 million from RM145.04 million in sales. As at end-2014, it had current assets of RM103.24 million, and non-current assets of RM68.95 million. The company had current liabilities of RM19.52 million and long-term debt commitments at RM7.47 million.

According to a back-of-the-envelope calculation, the merged entity would have more than RM900 million in assets, and generate in excess of RM500 million in revenue.

Pos Malaysia’s net profit for its nine months ended Dec 31, 2015, shrank to RM48.4 million from RM107.14 million the year before. Revenue, however, expanded to RM1.28 billion from RM1.09 billion. As at Dec 31 last year, Pos Malaysia had a cash balance of RM359.11 million without much debt.

To recap, Pos Malaysia is issuing 245.75 million shares to DRB as consideration for the purchase, which will result in the latter increasing its shareholding in the postal group to 53.49% from the current 32.21%. It is worth noting that the shares are to be issued at RM3.33 per share, which is at a 23% premium to Pos Malaysia’s close of RM2.70 last Thursday.

Making things more complex are the two contrasting views from sources within Syed Mokhtar’s group.

The executive who does not believe that the consolidation will take place asserts that both KN and JP Logistics are owned by port operating companies NCB Holdings Bhd, which owns Northport, and Johor Port Bhd, which controls Johor Port.

“Both KN and JP Logistics are meant to support the port businesses of Northport and Johor Port respectively. I doubt they will be injected into any other vehicle,” he says.

Meanwhile, the source who believes that Pos Malaysia will consolidate the other Syed Mokhtar logistics companies under its banner says that Pos Malaysia is being fashioned after Deutsche Post, which wholly owns giant logistics company DHL.

Nevertheless, in an announcement to Bursa Malaysia, DRB says the proposed disposal of KLAS and other assets will “allow DRB to consolidate its logistics business under Pos Malaysia …The proposed disposals will transform the Pos Malaysia group into an integrated logistics services provider serving both the traditional and e-commerce markets and enabling Pos Malaysia to offer a wider range of e-commerce solutions, from delivery to warehousing, logistics and fulfilment (process of receiving, packaging and shipping orders for goods) operations.”

“The traditional post office operation is a sunset business —it’s a fact, mail is declining, and the overheads are high. Once there is a certain population density, Pos Malaysia is required to build a post office, employ people and what not, which costs a lot of money,” one of the sources says, explaining Pos Malaysia’s diversification.

Meanwhile, the logistics business in Malaysia has tremendous potential.

“Why else would companies such as Temasek-owned Singapore Posts buy into courier company GD Express Carrier Bhd?” a market watcher asks.

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