Pos Malaysia: Does it have an Economic Moat over the other competitors?

Economic Moat is a competitive advantage that one company has over other companies in the same industry; this term was coined by Warren Buffett, a renowned investor, and executive at Berkshire Hathaway. The wider the moat, the larger and more sustainable the competitive advantage of a firm. By having a well-known brand name, pricing power and a large portion of market demand, a company with a wide moat possesses characteristics that act as barriers against other companies wanting to enter into the industry.

Read more: Economic Moat Definition | Investopedia http://www.investopedia.com/terms/e/economicmoat.asp#ixzz4d4EgLcqx 

To learn how Economic Moat can give a competitive advantage to a company, I would like to make an example as below:

There are five companies that produce lemonade juice - company A, B, C, D and E. All companies have the same quality and pricing and each of them has a fair share of the market. But company A has realized that it can save 30% of expenditure costs if they can buy the lemons every month instead of every week due to discounts if they buy in larger quantities. 

Company A can then reduces its production costs by 30% and consequently can reduce their price by 30% compared to the other companies. Company A then enjoys increased sales compared to the other 4 companies which saw their sales shrinking.

After 1 year, company B, C, D, and E too buy their lemons every month and enjoy discounts of 30%. They can reduce production cost by 30% and decided to reduce their lemonades price too. And now each of the companies has the same price and in terms of competitive edge, they are on the same level. Now all companies are back to square one in terms of competitive edge.

Company A then decided to find a way to lead again and to have a better competitive edge against its competitors. They then developed a new technology to squeeze out juice 30% more from the lemons compared to using the previous technology. They patented their designs and use this technology to reduce production costs by 30%. As company A has proprietary rights to the new designs, the other 4 companies cannot use the new designs and consequently cannot use the new technology to squeeze out more juice from their lemons.

So, now company A can reduce a further 30% discount on their lemonade and now lead back again on a competitive edge over the others, which they enjoy for several years because of this new technology. This is called Economic Moat, the term which was first coined by Warren Buffet.

So now the question is, does POS Malaysia has what it takes to have a competitive edge over its competitors? Does it have an Economic Moat that can beat its competitors in Malaysia? Can their services be upgraded to the level that surpassed the quality provided by other companies involved in logistics and freight forwarding services?

It is important that now Jack Ma, the founder of alibaba.com is coming to Malaysia to set up the new Digital Free Trade Zone (DFTZ) near LCCT, where there will be a large growth in the logistics and forwarding sector, POS Malaysia should tap this huge market to expand its business operations.

As we can see, people are realizing the impact of Jack Ma venturing into this kind of business in Malaysia, they can see that there are great potentials for buying shares of companies that are involved in logistics and forwarding services. Companies such as POS Malaysia, Gdex, Tiong Nam Logistics, Tasco and others are seeing their share prices going up at a faster rate than before. 

POS Malaysia shares as at 31st March 2017 close