24
FocusM | April 25-May 1, 2015
Mainstream
Labour cost has always been high in the courier industry; staff turnover can also be relatively higher than in other industries
GDex focuses
on e-commerce
Segment to be key driver of earnings growth although
it has a distance to go before catching up with the
contribution from express delivery
by Ng Wai
Mun
Listed integrated
courier company
GD Express Carrier
Bhd (GDex) is confident of facing the
challenges of an economic slowdown,
implementation of
the goods and services tax (GST) and
rising wages.
The company will be tapping into the
strong growth in the e-commerce sector,
especially online shopping, in a big way
to grow its business.
Its managing director Teong Teck
Lean says: “GDex has been in this competitive market for years and thus will be
able to see through various obstacles this
year, be it a slowdown in the economy,
implementation of GST or higher labour
cost.”
The company has been chalking up
growth in the teens over the past two
years, and Teong is confident revenue
will grow in the mid-teens again this year.
GDex recorded a 17% increase in revenue
in FY14.
Some analysts agree that GDex’s revenue growth in the teens is sustainable.
As to where growth will be coming
from, Teong says GDex sees the growing
significance of the e-commerce sector to
the courier business, particularly online
shopping. The latter potentially will be
one of the growth areas for GDex, he says.
He adds that the company will ride on
the euphoria of the e-commerce business
to complement and sustain the strong
growth of its existing courier-related
services.
In fact, Teong has been holding to
this belief of e-commerce’s growing
presence for some time now. Noting the
competitiveness of the courier industry
with almost 100 operators in Malaysia,
he hints that a rate hike would be quite
difficult if a player is adamant about
clinging on to its existing market share.
His view is shared by many analysts. RHB Research says: “GDex has
seen increasing contribution from its
e-commerce clients, where it provides
business-to-customer (B2C) deliveries.”
The research house believes this will
be the key driver for earnings. According
to RHB Research, GDex’s client, Astro
TV’s shopping channel Go Shop, is seeing
strong volume despite being launched
only last November.
RHB Research, however, cautions that
GDex’s exposure to the growing online
retail industry is still in the early stages.
“Only 10% of the total volume handled
is from B2C customers like Lazada and
Zalora.”
In its March report on the carrier
operator, RHB says it expects GDex’s
outlook to be “rosy ahead, with very
minimal capex outlay relative to its strong
operating cash flow churn”.
The research house nonetheless feels
that dividend may be minimal as GDex
could be embarking on an exponential
growth trajectory. It sees the courier
industry maturing eventually without
needing any major capex. On that note,
RHB says GDex’s dividend payout ratio
could potentially increase from the
current 35%. In FY14, GDex paid out a
dividend of one sen a share.
Strong ties with clients
An analyst says the e-commerce sector’s
growth itself may be slightly stifled this
year given the expected slowdown in
the higher-end retailing and electronics
segment which target mid-higher end
consumers.
Whilst bullish on GDex, the analyst
says e-commerce is something for the
company’s future. He doesn’t see major
growth in this segment’s contribution
to GDex over the next two years, adding
that consumers’ lack of trust of online
transactions is another factor which may
suppress e-commerce’s growth here.
He says GDex’s express delivery division posts a revenue exceeding RM150
mil per annum. It will be sometime before
any other fast-growing segment makes as
significant an impact on contributions.
The analyst adds: “GDex’s strength
is its relationship with its established
clients in this very competitive sector.”
He estimates the revenue of the local
GD Express Carrier Bhd
Key board members and management
Teong Teck Lean (managing director and
group CEO), Lim Chee Seong (CFO)
Major shareholders
GD Express Holdings (M) Sdn Bhd 31.1%
Singapore Post Ltd 25.8%
Market cap (April 22) RM2.05b
Share price (April 22) RM1.69
52-week high (April 9, 2015)
RM1.82
52-week low (Oct 16, 2014)
RM1.26
Financial results (H1 ended Dec 31, 2014)
Revenue RM93.8m
Net profit RM12.2m
courier industry to be RM3.3 bil last year.
This gives GDex a 5% share of the local
courier market. “Commendable, given
the sector comprises so many providers,”
says the analyst.
On GDex’s overseas expansion plan,
Teong says the company is on the lookout
for opportunities to gain some foothold in
the countries targeted. He adds that any
overseas venture would most probably
be in a merger or acquisition as it would
be very difficult to start from scratch in a
foreign country.
On competition, some analysts consider Pos Malaysia as one of GDex’s close
competitors. Teong was impartial. He
explains that Pos Malaysia has co-existed
with the courier companies for years.
“Each of us has our own niche market,”
he explains.
On the concerns of higher operating
expenses, such as fuel cost, that could
dampen GDex’s bottom line, Teong says:
“These are all part and parcel of running
a business in a (very) competitive sector.”
Whilst it may erode profits, Teong
says a portion of the increase in fuel cost
has been passed on to customers in the
Teong sees e-commerce,
in particular online
shopping, as one of the
growth areas for GDex
form of a fuel surcharge. “This has been
an industry practice for years.”
Teong says the company has always
implemented measures to improve
efficiency and reduce operating costs.
“Like most other companies, GDex is also
looking into e-billing to reduce the cost of
sending monthly statements to clients.”
Teong says one concern of the courier
delivery sector is labour. “Labour cost
is always high in this labour-intensive
industry. The staff turnover can also be
relatively higher than in other industries.”
GDex is already paying wages above
the minimum level, he says, adding that
the company’s reliance on foreign labour
is relatively lower as some jobs such as
the drivers, are taken up by locals.
Human Resources Minister Datuk
Seri Richard Riot Jaem recently declared
that a review of the minimum wage has
been completed and submitted for the
Cabinet’s approval. The current minimum wage is RM900 for the peninsula
and RM800 for Sabah, Sarawak and
Labuan.
In the event of a substantial increase
in the minimum wage, Teong says the
company will probably pass on some of
the extra cost to customers.
Talk has it that the new minimum
wage will be RM1,000. A market observer
believes the new minimum wage will not
affect GDex as its average wage is already
above the RM1,000 mark.
Seeking a tax allowance
Even so, the observer claims the operating profit margin will decline by only four
percentage points next year from FY14’s
operating margin of 21% if GDex’s wage
cost rises by 10%. This is assuming the
company absorbs the entire hike in wage
cost.
Moving forward, Teong hopes the
government can provide a special tax
exemption to courier companies to
further develop the sector. He says SMEs
have been using courier companies to
distribute their products.
The tax allowance would act as an
enabler, providing courier companies
with higher profits, which would be
reinvested for future growth. While
growing in tandem with SMEs, courier
companies will also help boost the small
and medium enterprise sector.
As it is, stiff competition has forced
out several smaller companies. From a
high of 117 back in 2002, the total number
of courier companies had dwindled to 91
as of end-2014.
Analysts expect the number of courier
companies operating in Malaysia to
continue to drop over the next few years.
“The authorities should be more
proactive in ensuring the number doesn’t
drop further. Whilst it may be a fully
mature sector, the authorities should
continue to develop the industry,” says
one observer.
RHB Research is maintaining its buy
recommendation for GDex with a target
price of RM2.05. The counter closed at
RM1.69 on April 22.