Tri-Mode System's Stagnant Earnings and Diminishing Growth Potential in a Competitive Logistics Market

The Malaysian logistics sector has emerged as a dynamic growth engine, driven by infrastructure expansion, digitalization, and e-commerce surges. Yet, for Tri-Mode System (M) Berhad (KLSE: TRIMODE), the industry's tailwinds have failed to translate into meaningful gains. Despite a 25% revenue increase in FY2024 to RM88.0 million, net income plummeted 34% to RM1.64 million, and profit margins contracted from 3.5% to 1.9%. This divergence between top-line and bottom-line performance raises critical questions about the company's operational efficiency and its ability to compete in a sector poised for innovation.

A Sector on the Rise, a Company in Decline

Malaysia's logistics market is expanding at a 5.2% CAGR, bolstered by projects like the East Coast Rail Link (ECRL) and the ASEAN Express freight train. Global players like DHL and FedEx are investing in AI-driven route optimization and zero-emission fleets, while local rivals such as AGX Group and TASCO Berhad are leveraging digital tools to streamline operations. In this context, Tri-Mode's stagnant earnings appear increasingly anachronistic.

The company's Return on Capital Employed (ROCE) of 2.8% lags behind the industry average of 4.0%, signaling poor capital utilization. Over the past five years, ROCE has declined from 3.5% to 2.8%, even as capital employed grew. This suggests that Tri-Mode's reinvestment strategy prioritizes scale over profitability. Meanwhile, its debt-to-equity ratio of 63.2% and a net profit margin of 1.56% highlight structural weaknesses.

Valuation Risks and Competitive Pressures

Tri-Mode's market cap of RM31.54 million pales in comparison to peers like Tiong Nam Logistics (RM387.3 million) and TASCO (RM380.0 million). Its stock has underperformed the logistics sector and broader Malaysian market, declining 41.54% over the past year. This volatility—15% weekly swings versus an industry average of 5.3%—reflects investor skepticism.

The company's struggles are not entirely sector-specific. While Malaysia's logistics industry benefits from government-backed infrastructure and e-commerce growth, Tri-Mode has failed to align with these trends. For instance, its lack of investment in automation or green logistics contrasts with competitors like FedEx, which aims for carbon neutrality by 2040.

Strategic Divestment or Speculative Hold?

For investors, the calculus hinges on two factors: the likelihood of operational turnaround and the company's ability to capitalize on industry tailwinds. Tri-Mode's recent Q1 2025 results—1.1% revenue decline and a 61% drop in net income—underscore deteriorating fundamentals. With five investment warning signs (four critical), the company's governance and cost structure warrant scrutiny.

However, the logistics sector's long-term growth potential remains intact. Tri-Mode's tri-mode (road, rail, maritime) logistics model could benefit from the ECRL's 2027 completion, which is expected to boost trade volumes. Yet, without significant cost restructuring or technological upgrades, the company may struggle to convert these opportunities into profitability.

Investment Advice

Given the current trajectory, Tri-Mode System appears more aligned with a strategic divestment than a speculative hold. The stock's low P/E ratio (23.0x) and P/S ratio (0.4x) may suggest undervaluation, but these metrics are offset by weak earnings growth and high volatility. Investors should consider exiting positions unless the company demonstrates concrete steps to improve margins, reduce debt, and adopt digital or sustainable practices.

For those with a long-term horizon, a cautious approach is warranted. Monitor the ECRL's progress and Tri-Mode's response to industry trends. If the company fails to adapt, its valuation risks will likely outweigh any speculative upside.

In a sector defined by innovation and efficiency, stagnation is not a sustainable strategy. Tri-Mode's current path suggests it is ill-equipped to thrive in the next phase of Malaysia's logistics evolution.