HLG: Teleport Boosts Earnings on E-commerce Surge and Cost Controls

Teleport, the logistics venture of Capital A, reported a robust performance in 2QFY25, recording positive core net earnings of RM3.2 million, a significant increase from RM0.4 million in 1QFY25. This strong financial result was primarily driven by the burgeoning e-commerce segment, strategic cost efficiencies, and a favorable external environment, according to a recent research report from Hong Leong Investment Bank (HLIB).

Performance Review and Key Drivers

The improved profitability stemmed from several key factors. Foremost among these was stronger contributions from the e-commerce segment, coupled with reduced staff costs and an optimized cost structure. Teleport benefited from leveraging third-party partner airline connectivity, which enhanced its operational efficiency, and lower net finance costs. Despite a marginal 0.5% quarter-on-quarter decline in total tonnage, the number of parcels delivered surged by 13.7% QoQ, underscoring the strength of the e-commerce sector.

Teleport has also capitalized on the depreciation of the US Dollar. A substantial portion of its costs, particularly airline space leasing, is denominated in USD, while 85% of its revenue is in local currencies, making USD depreciation margin-accretive. Furthermore, its exposure to jet fuel price fluctuations remains minimal, as cargo is predominantly transported using the belly space of AirAsia Aviation and third-party airlines, where pricing is demand-driven.

Future Outlook and Strategic Expansion

Management has provided an optimistic outlook for 2HFY25, anticipating a seasonally stronger period with peak performance expected in 4QFY25. Teleport remains on track to achieve its ambitious target of delivering 2 million parcels per day by end-2025, a significant jump from the current peak daily volume of 509,000 parcels. To support this growth, Teleport has proactively expanded its capacity by 2.8 times, primarily through strategic partnerships with third-party airlines. This expansion, coupled with current growth momentum, is projected to contribute RM50-60 million in quarterly earnings once the 2 million parcels/day milestone is achieved.

In a strategic move to strengthen its financial position, Teleport successfully refinanced its USD35 million debt at a lower interest rate with more favorable repayment terms. The company continues to expand its network into new markets, including Oceania, the Middle East, Europe, and Africa, leveraging both AirAsia Aviation’s belly space and external airline partnerships.

Investment Bank’s Recommendation

HLIB maintains its “BUY” recommendation for Capital A, with an unchanged target price of RM1.68. The bank’s confidence is underpinned by a robust air travel recovery, continued tailwinds from USD weakness, and lower jet fuel prices. The successful execution of its PN17 regularisation plan is also expected to unlock further investor confidence and potential valuation re-rating.