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Firmer foothold

Released at: 08:34, 03/12/2017

Firmer foothold

Photo: Viet Tuan

South Korea’s CJ Logistics solidified its position in Asia’s logistics sector with the recent purchase of two Gemadept subsidiaries.

by Hong Nhung

Vietnam’s largest logistics and seaport services provider, Gemadept, recently announced that it closed a deal to sell stakes in two subsidiaries to South Korea’s CJ Logistics Corporation, the logistics arm of retail giant the CJ Group. In a regulatory filing to the Ho Chi Minh Stock Exchange (HoSE) last month, CJ Logistics completed the purchase of a majority stake of 50.9 per cent each in Gemadept Logistics Holdings and Gemadept Shipping Holdings. The value of the purchases was not disclosed, but industry insiders put the total for the two deals at $125 million.

Vigorous ambition

CJ Logistics, formerly known as CJ Korea Express, apparently offered a higher price than its compatriot, the Taekwang Industrial Company, to acquire Vietnam’s largest logistics firm, as part of its effort to establish a secure logistics base in Southeast Asia. The deal is expected to help it extend its foray in the region, linking Vietnam with Cambodia and Laos with the goal of becoming one of the world’s Top 5 logistics operators by 2020.

Mr. Chang Bok Sang, President and CEO of the CJ Group Vietnam, told local media in March that it has a fund for merger and acquisition (M&A) activities and has been interested in Vietnamese State-owned enterprises undergoing equitization. It has enjoyed annual growth of around 30 per cent and is keen on diversifying into more industries in the country. As at 2016, it had invested $500 million in a wide range of agriculture, entertainment, pharmaceutical, and retail businesses and plans to increase its portfolio to $1 billion by the end of this year.

It has moved to take further steps in the country, with a range of M&A deals in recent times. Over the last few years, it has focused more on food processing and cultivating potential local partners. It failed to become a strategic partner of Vissan, the country’s largest meat processor, last year, but acquired kim chi distributor Ong Kim and a 71.6 per cent holding in Cau Tre Foods, a popular frozen food brand, and then invested $13.44 million in a 65 per cent stake in Minh Dat Food, a market leader in meatballs.

CJ Vietnam posted over $740 million in revenue and $36 million in pre-tax profit last year, mainly from animal feed, agriculture, and entertainment. Arriving in Vietnam in 1998, joining its animal feed industry, it became one of the Top 4 companies in the field and will have a sixth animal feed plant in operation this year. It went on to enter into the food sector in 2007, with its Tous Les Jours bakery chain, which as at September had 30 outlets around the country. Later, it caught attention after spending over $73 million on acquiring some 80 per cent of Megastar Cinema, Vietnam’s largest cinema chain at the time.

Some say that CJ Logistics will be able to be on equal footing with Nippon Express, the largest logistics company in Asia, once its acquisition in Vietnam is completed. Indeed, while spreading its tentacles into diverse sectors, CJ Group’s latest move on Gemadept’s two subsidiaries confirms its long-term ambitious plans in Vietnam. The giant has also been expanding its reach into logistics in different countries worldwide.

CJ Logistics has also made major acquisitions in other logistics firms in China and Southeast Asia. In 2016, it bought a 31.4 per cent stake in Malaysia’s second-largest logistics player, Century Logistics, and a 50 per cent stake in China’s Shenzen Speedex for $113.4 million. In April this year, it picked up 51 per cent in the Dubai-based Ibrakom, which specializes in heavy transport, and Darcl Logistics, India’s largest transport company. CJ Logistics is now South Korea’s largest total cargo delivery company, delivering over 20 million packages a day to over 100 countries around the world.

Positive prospects

Vietnam has recently become among the most-favored investment destinations for South Korean companies. Despite being in its early stages of development, Vietnam’s logistics sector remains on the radar of foreign investors thanks to the country’s skilled workforce, relatively low costs, and rapid e-commerce development. “We will provide an upgraded comprehensive logistics service in the global arena by integrating our capabilities in technology, engineering, and systems and solutions with Gemadept’s network and infrastructure capacity,” Mr. Park Geun-tae, CEO of CJ Logistics, was quoted as saying. CJ Vietnam refused to comment when approached by VET.

The CJ deal is part of Gemadept’s restructuring plan, allowing it to focus on its core business lines, and was approved at its annual shareholders meeting in May, after which it planned to sell affiliates to strategic partners. Gemadept’s CEO Do Van Minh told the meeting that the company would pay a special dividend of 85 per cent, or $0.37 per share, this year if the share sales in Gemadept Logistics and Gemadept Shipping are completed. 

Ho Chi Minh City Securities (HSC) has estimated Gemadept could rake in cumulative earnings of about $105.7 million from the two divestments. In a separate filing to HoSE in October, it said it transferred 15 per cent of its capital in CJ Vietnam to the CJ O Shopping Co. It also divested its 51 per cent stake in the Hoa Sen Gemadept Logistics and International Port Corporation for around $4.4 million, HSC noted in a report.

Gemadept has emerged in recent years as an attractive option for numerous investors. Founded in 1990, it was one of the first three State-owned enterprises to be equitized and listed. It owns a dozen subsidiaries in logistics, port operations, and real estate development and also has logistics and plant facilities in Cambodia and Laos. 

It has the following ownership ratios in a number of ports: Nam Hai Port 99.98 per cent, which contributed about 10 per cent of net sales and 19 per cent of gross profit in 2016; Nam Hai Dinh Vu Port 84.66 per cent, contributing about 19 per cent of net sales and 34 per cent of gross profit; Phuoc Long Port 100 per cent, contributing about 12 per cent of net sales and 9 per cent of gross profit; Nam Dinh Vu Port 60 per cent, which is under construction and will be operational from 2018; and Dung Quat Port 81.6 per cent, contributing about 2 per cent of net sales and 6 per cent of gross profit.

In the first half of this year, Gemadept reported net revenues of more than $82 million and net profit of $10.2 million, up 3.7 and 5 per cent year-on-year, respectively. Last year it earned around $162 million in revenue, up 4 per cent year-on-year, 43 per cent of which came from port services and 57 per cent from logistics, while its pre-tax profit was down 5 per cent, to $20 million. After restructuring and divestments, the company is targeting $166 million in consolidated revenue and $23.3 million in pre-tax profit for 2017 as a whole. 

Gemadept’s core port and logistics business is growing steadily thanks to higher capacity and its position as one of the largest logistics service providers in Vietnam and one of only a few companies in the country capable of supplying all types of logistics service within the supply chain from a variety of different assets such as ports, distribution centers, warehouses, and inland container depots (ICDs). The company has leveraged its presence in most logistics value chains to become a complete integrated logistics supplier.

Navigating obstacles

In its core business lines, Gemadept recorded nearly $37 million in net sales from port operations and $45.3 million from logistics activities in the first half of 2017, up 1 per cent and 6 per cent year-on-year, respectively. The general gross profit margin, however, fell to 24.6 per cent from 29.1 per cent year-on-year. This was due to the gross profit margin in both port operations and logistics falling to 38.5 per cent and 13.3 per cent, respectively, from 44.8 and 15.6 per cent in the same period in 2016.

According to a report from FPT Securities (FPTS), rising competition at Hai Phong Port led the company to cut its service charges despite an increase in cargo circulation. According to the Hai Phong Statistics Office, in the first six months of the year, output of goods through Hai Phong’s seaport network increased 13.8 per cent over the same period of 2016. Moreover, the FPTS report noted that raw material costs increased 74.6 per cent year-on-year in the first half of 2017 because Gemadept put its Nam Hai ICD and Mekong Logistics projects into operation. Meanwhile, labor costs and depreciation expenses also increased by 8.8 per cent and 6.6 per cent, respectively.

In the meantime, CJ and Gemadept have also found themselves amid a fierce competitive environment domestically, with a raft of international logistics giants, especially those from Asia, strengthening their investment in Vietnam over recent years. According to CEL Consulting, M&A activities in the logistics industry have been vigorous worldwide since 2015, estimating that total M&A value in Asia’s logistics sector reached $12 billion in just the second quarter of 2017.

CJ’s compatriot, Samsung, announced in July it had signed an agreement with the Minh Phuong Logistics Corporation, another of Vietnam’s leading logistics companies. This is the second time Samsung has launched a joint enterprise in order to establish itself in Vietnam. Cooperation with a local company with substantial capacity for inland transportation is crucial when it comes to entering Vietnam, where such transportation accounts for 65 per cent of the entire logistics market, Samsung said in a statement.

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