GDEX seen shielded from yield pressures

PETALING JAYA: GD Express Carrier Bhd (GDEX) remains shielded by its presence in the business-to-business (B2B) segment, even as delivery players in the e-commerce (business-to-consumer or B2C) segment face yield pressures.

MIDF Research said B2C players are facing yield pressures due to new entrants in the market and existing players adding capacity, which has worked in favour of e-commerce platforms who gain bargaining power in negotiating for lower delivery rates.

“Exacerbating matters are platforms like Lazada who continue to grow at blazing speed, doubling its sales in 2016 with a similar target for 2017. As volumes grow, e-commerce platforms are able to negotiate thinner rates with express delivery partners in return for a share of its large parcel volumes,” it said in its report yesterday.

However for GDEX, the bulk of its revenue remains anchored on its B2B business although the B2C segment has been its key growth driver in recent years.

It derives some 70% of its revenue from the B2B segment, with clients comprising banks, telcos, multinational companies and small and medium enterprises.

MIDF Research said the company’s emphasis on the B2B segment enables it to not overly pursue B2C contracts and instead, allow the market to consolidate.

Meanwhile, the company continues to expand its sorting capacity, improve the quality of its service and enhance its IT systems while a rainy day fund of RM277.6 million allows it to ride out any potential volatility.

In terms of expansion, GDEX initially planned to set up a new sorting hub in Sungai Buloh by 1H18 with additional capacity of 60,000 parcels per day. However, it is now exploring a more cost-effective method of upgrading its Petaling Jaya sorting hub, which would give it similar capacity additions.

“In addition, GDEX has obtained the permit to grow its vehicle fleet by another 200 trucks, which could boost its fleet from 864 to more than 1,000 by end-2017,” said MIDF Research.

GDEX is also keen to regain the syariah-compliant classification in the next update in November this year and has taken the required steps to fulfill the requirements, pending an evaluation by the Syariah Advisory Council.

Recall that its syariah-compliant status was removed in May, when its cash over total assets in conventional accounts breached the 33% limit, prompting a brief sell-off which saw the company’s shares price dip 7.7% in the ensuing three trading days.

MIDF Research also noted that GDEX could exercise its equity conversion sooner than the five year conversion period once it is on a stable footing.

GDEX is currently focusing on improving its position, reporting standards and IT systems.

MIDF Research maintained its “neutral” call on GDEX with an unchanged target price of 70 sen, a valuation which assumes weighted average cost of capital of 8.5%, high growth period between 2020 and 2027 of 9.5% and terminal growth rate of 3.5%.

“GDEX has had an outstanding run, with its ascending 60% year-to-date. We believe the company is fully valued for now, hence our neutral recommendation,” it said.

Source: The Sun Daily

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