Jun 30, 2008
( SHARIDAN M. ALI )
THE degree of impact of the recent fuel price increase on the logistics players' growth will depend on the companies' range of services and its fleet size, said OSK Research in its recent sector update.
The Government announced on June 4 that the price for petrol had been raised by 78 sen per litre to RM2.70 per litre (up 40.6%) while diesel increased by RM1 to RM2.58 per litre. This reflected a 40.6% and 63% increase in petrol and diesel respectively.
The report, however, said for logistics companies that used the fleet card system, the increase in diesel price was only 19% to RM1.43 from RM1.20, and is limited for a proportionate amount of the total annual diesel consumption approved by the Government.
"On average, logistics players usually use the subsidised price in the range of 30% to 50% of their total annual diesel consumption.
"Any consumption beyond the capped amount will be charged the normal pump price. This limits the full impacts of the increase in diesel price," it said.
It added that the full impact of the high fuel price was also mitigated by numerous increases in different divisions of the logistics sector.
"But being a highly sensitive industry that relies on the state of the overall economy, we expect a tougher time lies ahead for the sector due to lower demand from the private sector," it said.
OSK Research maintained a "neutral" stance on the sector and downgraded all the logistics counters within its coverage. The research house has picked Freight Management Holding Bhd as the least affected company under its coverage due to the fuel price increase. This is based on its small fleet of about 20 trucks and nine prime movers and the bright prospects of its recent joint-venture agreement in providing integrated logistics activities in Indonesia.
"We adjust our revenue estimates accordingly to incorporate a 25% increase in local transportation charges as well as the increase in fuel adjustment factor to18.26% from 12.47%.
"This increases our revenue forecast from its railway operation by 10% and 12% for next financial year (FY09) and FY10 ending June 30 respectively.
"Our revenue forecast from warehousing operation also increases by 9% and 11% for FY09 and FY10 respectively," it said. OSK Research maintained a "buy" call with lower target price of RM1.02 from RM1.05.
Another logistics company, Trans-Asia Shipping Corp Bhd (Tasco), may be "moderately hit" by the new fuel price.
"With airfreight being its highest contributor in gross earnings followed by its trucking division, Tasco faces tough challenges ahead on spiralling fuel costs for both diesel and crude oil. "In the effort to mitigate the impacts, Tasco is conducting a study on the long-term efficiency and economic viability of using natural gas vehicle (NGV).
"As fuel accounts for about 10% of total operating costs prior to the price hike, it makes economic sense in converting its fleet to NGV," it said. The research house reduced its target price of Tasco to RM1 from RM1.10 with a "buy" call.
Meanwhile, GD Express Carrier Bhd is likely to be the most exposed to the increase in fuel prices due to the lack of diversification in its business activities and given the size of its fleet of about 260 delivery vans.
"With its courier business accounting for 80% of total revenue, diversification is deemed a necessity to mitigate contracting margins.
"We reduce our earnings estimates by 6.7% and 9.3% for FY09 and FY10 ending June 30 respectively, given the contraction in its earnings before interest, tax, depreciation and amortisation margins of -1.5%," it said.
The research house reduced GD Express's target price to 60sen from 65sen and maintained a "neutral" call on the stock. Century Logistics Holdings Bhd, with its fleet of 105 prime movers and 78 trucks, is likely to face margin compression, as the group's transportation division was its second largest contributor in FY07 ended Dec 31.
"This will be further compounded by the dry docking of two of its floating-storage units this year. "Hence, we are revising our projected net income growth for FY08 to 7.8% from 10.9% with a downward revision in core earnings by 2.5% from our initial estimates," said the report.
It maintained a "buy" call but revised the target price to RM2.