DHL entry for Malaysian Transmile?

TRANSMILE Group Bhd recently lost a bid to renew a contract with its biggest shareholder, Pos Malaysia Bhd, fuelling speculation that the postal operator wants to sell its shares in the air-cargo company. Pos Malaysia, which holds a 17.29 per cent stake in Transmile, had awarded its business to lesser-known Gading Sari Aviation Services Sdn Bhd. According to sources, Transmile had been carrying cargo for Pos Malaysia since 1993, but the contract, equivalent to about 4-5 per cent of Transmile’s total revenue, expired in December last year. “The contract was then extended for three months until March 2006, before Pos Malaysia decided not to renew Transmile’s contract after conducting a review of its existing suppliers,” a source told Business Times. This could mean that courier firm DHL could enter and buy a strategic stake in Transmile, the source said.

DHL is currently one of Transmile’s biggest customers. It is also a great time for Pos Malaysia to cash in its chips. Transmile shares have more than doubled since Pos Malaysia exchanged its unquoted shares in Transmile Air Services Sdn Bhd, the air-transport subsidiary of Transmile, in return for quoted Transmile shares at RM6.25 apiece in 2004. Transmile stocks closed at RM12.50 last Friday. “The change in the nature of association between Pos Malaysia and Transmile alludes to the former exiting Transmile in due course,” said a source. At press time, Pos Malaysia and Transmile officials did not reply to questions from Business Times. Analysts said the loss of contract would not have a significant financial impact on Transmile’s business. “The impact will not be significant, given that the contract accounted for about 4-5 per cent of Transmile’s total revenue,” Hwang-DBS Vickers Research Sdn Bhd senior analyst Wong Ming Tek told Business Times. He has forecast Transmile to report net profit of RM124 million and revenue of RM1.18 billion for the fiscal year ending December 31 2006. Last year, Transmile posted a net profit of RM84.4 million on a revenue of RM550.08 million. “The optimism stems from the full-year utilisation of Transmile’s four new MD-11s this year since it took delivery of them in the fourth quarter of 2005,” said Wong. Transmile currently operates a freighter fleet of 10 B727s, four MD-11s, four B737s and two Cessna 208Bs. However, Wong has downgraded the stock from “buy” to “hold” following its recent first-quarter earnings report that was below expectation. Another analyst agreed that the loss of the Pos Malaysia contract would have no significant impact on Transmile since the group can easily redeploy its freighters to more-profitable routes. Sources said that since the contract with Pos Malaysia ended, Transmile has redeployed its freighters on the Kuala Lumpur-Bangalore (India) route which generates more revenue. The analyst also does not discount the possibility of Pos Malaysia disposing of its stake in Transmile. “Pos Malaysia has said that this is possible if the price is right.”