200-year-old snail mail operator taps Alibaba for growth

Postal companies in Asia are remodeling themselves by expanding overseas to meet rising demand spurred by a global retail e-commerce market

Malaysia's biggest postal company is seeking a more direct role in providing logistics services to Chinese e-commerce giant Alibaba Group Holding, tapping a boom in online retailing.

Pos Malaysia plans talks with Alibaba this month on bypassing the middlemen when shipping goods sold on its platforms, Mohd Shukrie Mohd Salleh, its chief executive officer, said. Surging parcel deliveries for online shopping drove a 40 per cent jump in profit in the fiscal first quarter and full-year earnings will be higher than a year earlier, he said.

"My focus is still e-commerce, and it is driving the logistics business. When e-commerce is booming, somebody needs to deliver these items," Mohd Shukrie, 42, said in an interview at the company's headquarters in Kuala Lumpur. "Marketplace owners wants to deal with logistic players directly. I'm going to China to meet up with Alibaba and other market players" in October, he said.

Postal companies in Asia are remodelling themselves by expanding overseas to meet rising demand spurred by a global retail e-commerce market valued at about $1.2 trillion by the Universal Postal Union. Pos Malaysia, which started work in the early 1800s delivering mail by bicycle, is the top performer this year among 14 global courier stocks with a market value of at least $500 million, recording a total return of 49 per cent, beating United Parcel Service and FedEx Corp.

Pos Malaysia stock has soared 85 per cent from a February low as record earnings from its courier business and a potential increase in tariffs for the first time in six years buoyed the shares. The government is examining its proposal for higher postal rates, said Mohd Shukrie. The company is valued at 25 times its 12-month projected earnings, versus 18 for UPS, the world's most valuable courier company.

Alibaba said its delivery affiliate Cainiao Smart Logistics Network "works collaboratively with logistics participants to enhance customer experience and operation efficiency. "It is natural we talk to industry participants," it said in an e-mailed statement in response to queries by Bloomberg News.

While Pos Malaysia handles parcel deliveries for Alibaba through freight forwarders, or so-called consolidators such as Japan's Sankyu, the Kuala Lumpur-based company wants to deal directly with these marketplace owners, said Mohd Shukrie.

"The future is about cutting the middleman, and the existence of consolidators will be under threat," he said. "Right now, we deal more with consolidators for parcels from China to the world, but understandably marketplace owners want to deal with logistic players directly."

Consolidators collect and group outward-bound cross-border mail to specific destinations and negotiate special rates with the public postal operators to distribute the bulk mail in the designated countries.

Singapore Post, which counts Alibaba as its second-biggest shareholder, said a year ago it plans to expand freight services and warehouses in the US and Europe as Asia's emerging middle class drives online purchases from overseas.

"The potential is quite huge for e-commerce," Lim Sin Kiat, an analyst at Hong Leong Investment Bank in Kuala Lumpur, said by phone. "Clients are looking for fully integrated services, and it's still a work in progress for Pos Malaysia to be fully integrated." Lim has a buy call on the company with a target price of 3.87 ringgit. The stock closed unchanged at 3.85 ringgit.

In September, Pos Malaysia completed the purchase of KL Airport Services from parent DRB-Hicom, controlled by businessman Syed Mokhtar Al-Bukhary. The move will boost revenue to 2 billion ringgit ($482 million) in the year ending March 2018 and allow the company to offer more logistics services overseas, said Mohd Shukrie.

KL Airport now has two aircraft and the capability to pick up cargoes from the region including Hong Kong, he said. It can expand the fleet by one plane annually in the next five years in tandem with business growth, said Mohd Shukrie, who mentioned Ingvar Kamprad, Ikea's billionaire founder as an inspiration for building a steady and sustainable business.

"The pie is growing very fast, we do not want to settle with growing with the market, we want to grow more than the market," he said.