Knutsford Express Rides Revenue Growth Wave, But Battles Rising Costs

• Knutsford Express Services Limited (KEX) delivered a strong revenue performance for the fiscal year ending May 31, 2024; however, rising costs weigh on net profit growth.
• KEX saw a record-breaking 18.9% (or $312.38Mn), increase in revenue, reaching JMD $1.96Bn, up from JMD $1.65Bn in the previous year, making it the highest reveneus ever recorded by the company. This surge was driven by continued demand for its passenger and courier services, as well as additional contributions from rental income at its Drax Hall Business Centre and café operations. The company reported higher passenger volumes across all routes.
• However, this growth did not translate into a substantial increase in earnings as the company recorded only a modest 1.7% increase in net profit for its financial year ended May 31, 2024 ($309.46Mn from $304.36Mn in the prior year). This marginal increase is largely attributed to rising administrative expenses.
• Administrative expenses increased by 24.9% to $1.66Bn, largely due to workforce expansion to support growing customer demand. The sharp increase in expenses outpaced revenue growth, leading to a marginal 3.5% (or $14.13Mn) rise in operating profit. The operating margin, as a result, dipped by 3.22 percentage points to 21.52%.
• The company’s growth trajectory is promising, but profit margins will remain under pressure unless management can control rising expenses. To address this, management has been implementing cost containment strategies to curb rising expenses and support profitability.
• However, with plans of expanding its fleet with new coaches and deploying kiosks in its depots to provide a seamless digital experience in the booking and check-in phases of travel for its customers, careful cost management will be crucial. If these investments can enhance operational efficiency, profitability could improve over the medium term. However, short-term profitability is likely to remain constrained unless there are deliberate efforts to yield more immediate results.
• KEX’s stock price has fallen 14.0% since the start of the calendar year, to $10.87 at the close of Wednesday’s trading session. It currently trades at a P/E of 14.9x, which is below the Junior Market Other Sector Average of 15.8x.

(Sources: JSE & NCBCM Research)