Focus on express delivery on e-commerce
Earlier this year, Viettel Post stated that the company would start concentrating on e-commerce platforms business. In 2020, Viettel Post mainly focused its sales efforts on small and medium-sized online retailers with websites or on social networks.
Taking advantage of the e-commerce trend, the shift is forecasted to bring higher-than-average growth for Viettel Post.
According to SSI Securities Corporation, in the past 5 years (2016 – 2020), the scale of Vietnam’s e-commerce market has recorded a compound growth rate (CAGR) of 25%, bringing the size of this market to three times higher (12 billion USD in 2020) than that of 2016. It is estimated that in the next 5 years, the size of the e-commerce market will continue to grow at a CAGR of 20% over the same period to reach 30 billion USD in 2025. All the companies in this field as well as supporting industries such as express delivery and payments will experience the same increase.
In particular, the battle in the field of express delivery on e-commerce is projected to be on price and may last until 2022. Previously, the total delivery cost/GMV (total value of goods) was about 9% in 2019. Due to discounts from newcomers like BEST and J&T Express, the industry’s general price must be around 8% lower than GMV.
Cooperation with Saigon Newport
In order to realize the goal of increasing revenue for the logistics segment, Viettel Post Joint Stock Corporation (Viettel Post) will cooperate with a strategic partner Saigon Newport – the largest seaport operator in Vietnam with about 60% of seaport market share.
At the Annual General Meeting of Shareholders, Viettel Post set a goal in the next 5 years to increase 55% of revenue in the logistics segment, therefore, Viettel Post plans to spend VND 2.000 billion of investment capital for this new venture, mainly for building warehouses. Currently no raising-capital plan is expected to be implemented by this company.
Owing to the cooperation with Saigon Newport, Viettel Post is supposed to provide a full range of logistics services for import and export activities, mass operations from goods loading to transporting to the final destination nationwide through Viettel Post’s network of warehouses and employees with the support of the MyGo platform.
According to SSI, this cooperation can help Viettel Post to develop significantly due to the much larger size of the import-export logistics market than that of the e-commerce one. The total import-export value in 2020 is recorded to be over 500 billion USD compared to 12 billion USD of the e-commerce market in the same year.
However, Viettel Post will also have to face some difficulties in the initial stage of cooperation. The company needs time to gain the trust of customers before it can bring in big enough profits. In addition, the current logistics market is still quite fragmented, leading to fierce competition and new entrants such as Viettel Post will need to keep profit margins low from the beginning to be able to capture a large share of the market advantage in terms of market share.
Invest in technology – automation and redundancy
Besides focusing on e-commerce delivery and preparing to cooperate with the seaport giant, over the past two years, Viettel Post has also invested maassively in technology and process automation at distribution centers in Hanoi and Ho Chi Minh City. This activity has helped Viettel Post to cut off more than 500 employees and achieve stable growth in output.
In addition, Viettel Post will start to take advantage of economies of scale by shifting from the good purchasing by kilogram into the entire aircraft cargo compartment to economize transportation costs. Along with that, the cost of premises is expected to decrease by about VND 200-300 billion.
From the second quarter of 2021, Viettel Post will also divide its business into three separate divisions to manage under SBU (Strategic Business Unit), including delivery, fulfillment, and telecommunications. This management is expected to improve efficiency with cost management and revenue growth.
With the aforementioned potential activities and plans, the gross profit margin for Viettel Post’s delivery service segment in the period 2021 – 2022 is projected to increase to 10%. Profit after tax in 2021 and 2022 is estimated at VND 496 billion and VND 628 billion respectively with an increase of 29,3% and 26,6% compared to the previous year.