THE first week of the movement control order (MCO), which began on March 18, was bad for GD Express Carrier Bhd (GDex).
It suffered at least a 50% drop in parcel volume from its core business-to-business (B-2-B) segment, when the operations of its non-essential customers had to be halted as part of a national effort to contain the spread of the novel coronavirus (Covid-19) in Malaysia.
But things quickly turned around for the express delivery and logistics company by the second week of the MCO. There was a sudden huge surge in demand for its parcel-delivery services, and this growth has not stopped since then.
According to GDex CEO/managing director Teong Teck Lean, the group’s parcel volume has been growing rapidly since April, driven by its business-to-consumer (B-2-C) and customer-to-customer (C-2-C) segments, as businesses and individuals adapt to social distancing measures in the face of the Covid-19 pandemic.
In May alone, the daily volume has already surpassed the levels recorded in the company’s best years, Teong says.
“Customer demand is currently outstripping our capacity, ” he tells StarBizWeek.
“There are two reasons for our under-capacity. First, it is the huge surge in volume; second, it is the fact that we are still operating under the conditional MCO (CMCO), and this has a slight impact on our productivity due to the various precautionary and social distancing measures still in place, ” he explains.
The CMCO is expected to end on June 9.
Teong notes that GDex is currently trying to adapt to the changing business landscape, while cautiously expanding its operations and capacity.
“The entire economy is going through a continuous evolution to a new model of operations.. we are trying to adapt and cope with this process, while expanding, ” he says.
Among other things, Teong reveals GDex is now investing more in automation to reduce reliance on human labour and improve efficiency.
The company had earlier guided a capital expenditure (capex) of RM40mil for the financial year ending June 30,2020 (FY20) for its automated sorting hub expansion in Petaling Jaya, Selangor, in addition to the routine maintenance and upgrade works.
According to Teong, GDex is also currently reconsidering its range of distribution points. The plan is to widen its points of distribution to minimise risk.
“The Covid-19 pandemic is a reminder that we cannot concentrate everything in one place. We need to break out certain components in different places to prepare for future pandemics, ” he explains.
In addition, Teong says the company is focused on regional expansion to strengthen its business and build a stronger team to connect the region.
GDex’s strength in the current uncertain market is its lean balance sheet, with a net cash position of more than RM100mil. This will support its expansion plans.
Rising share price
GDex’s shares have been gradually rising over the last two months. Since hitting their record low of 12.5 sen, the counter has more than doubled to end at 38 sen yesterday.
At its close, GDex’s shares were valued at about 100 times the forward price-to-earnings (PE) and 4.4 times price-to-book.
It does not have a dividend policy, but in FY19, the company paid a dividend of 0.25 sen per share, translating to a yield of about 0.6%.
Over the week, GDex revealed that its net profit had fallen 52% to RM10.8mil, or 0.19 sen per share, for the nine months to March 2020, from RM22.6mil, or 0.40 sen per share, in the corresponding period last year. Its revenue grew 9.9% year-on-year (y-o-y) to RM258.7mil from RM235.3mil previously.
Besides being impacted by the fallout from the Covid-19 impact, GDex’s earnings for the period in review were weighed down by the Malaysian Financial Reporting Standard 16 (MFRS 16) accounting treatment on leases assessment and adjustments. The adoption of the MFRS 16 had a negative impact of RM1.5mil on GDex’s bottom line during the period in review.
For the third quarter (Q3) ended March 31,2020 alone, GDex’s net profit was down 96% y-o-y at RM210,000. But revenue was up 13.2% y-o-y at RM88.2mil, thanks in part to contribution from its newly acquired Vietnam subsidiary company.
The worst is over
According to Teong, the worst is probably over for GDex.
Domestically, the business volume of its express delivery segment has been picking up strongly since Q4 of FY20, as increasingly more consumers turn to online platforms to make their purchases and businesses turn to GDex’s digital platform, namely myGDEX, to sell their products.
In addition, Teong reveals the company has been seeing growing demand for its services from big corporations such as banks and telcos. He aims to eventually sign long-term deals with these corporations.
Regionally, GDex’s operations in Indonesia and Vietnam – namely its 44.5%-owned PT Satria Antaran Prima Tbk, or SAP Express, and 50%-owned Noi Bai Express and Trading Joint Stock, or Netco - have also recorded healthy growth in volume since Q4 of FY20.
Teong points out that the group’s logistics business is also improving, as supply chain operations in China are slowly recovering from the shock of the Covid-19 lockdown.
On the risk of rising competition pressuring profit margins, Teong says “GDex’s strategy remains focused on providing better and more comprehensive solutions to its customers”.
“Cutting prices is not the answer; otherwise, there will be a risk of the business becoming unprofitable, which in turn, makes it unsustainable, ” he explains.
Teong notes that given the accelerated shift towards digitalisation and e-commerce, it is not surprising to see the emergence of strategic investors in courier and logistics companies, or the formation of partnerships to develop new products to meet the changing trend of customer demand.
Teong cites the recently formed alliance between FedEx Corp and Microsoft Corp to reinvent the global end-to-end commerce solutions as an example.
He also notes the emergence of new investors such as Brunei state fund Zamrud, Thai financial institution Bangkok Bank and Thai telco Intouch Holdings in Singapore-headquartered express delivery company Ninja Van as an another example.
As for GDex, Teong says, the group remains open to forming strategic alliances or having new strategic investors taking up a stake in the company to support its expansion.
“This is something that’s in my thoughts all the time, ” he says.
At present, Teong has a direct interest of 2.2% in GDex, and an indirect interest of 36.8% in the company. Other significant shareholders in the company include Singapore-based delivery and logistics company Yamato Asia Pte Ltd (22.9%) and postal firm Singapore Post Ltd (11.6%).
Over the week, RHB Research and MIDF Research raised their target prices for GDex after the company announced its Q3 of FY20 financial results
RHB Research maintains its “buy” call on the counter with a new target price of 50 sen, up from 40 sen previously.
MIDF, on the other hand, maintains its “neutral” stance on GDex, with a higher target price of 48 sen, compared with 17 sen previously.
RHB Research remains positive on the company for its robust growth prospects for FY21 and FY22, spurred by the shift towards digitalisation and e-commerce. It was also positive on GDex’s cost-optimisation focus, as well as the group’s sustainable growth prospects within Asean’s last-mile delivery space.
RHB Research reckons that GDex would see higher volume growth and margin improvement due to operating efficiency gains in the quarters ahead. These, however, would be partly offset by the accounting impact of MFRS 16’s adoption.
Relatively more cautious, MIDF says GDex’s valuation remains stretched at a 12-month trailing PE ratio of 122.7 times, compared with the industry average of 15 times. Its higher target price for GDex came after ascribing a lower weighted average cost of capital of 7%, compared with 12% previously, amid the broad market strength in the e-commerce industry.
MIDF says other non-listed players such as Ninja Van and J&T Express would remain a threat to GDex in the next two to three years, as these companies continue to receive funding.
The brokerage explains that these competitors could come up with better pricing strategies over time, and that would eventually disrupt GDex’s market share.
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