GDex taking Asean market by storm

Teong Teck Lean, the company’s main shareholder, just walked away with a cool 93  millionlion ringgit from selling a block of his shares to a Japanese concern, Yamato Holdings Co Ltd.

 

Together with him, another major shareholder, Singapore Post Ltd (SingPost), also made a killing of S$64 million (RM190.05 million) from the sale of another block to Yamato.

 

Yamato, Japan’s largest door-to-door delivery service company, now owns 23 per cent of GDex via its wholly owned unit Yamato Asia Pte Ltd.

 

Yamato bought into GDex to use the latter as its springboard into the Asean region. A major announcement will be made in the following week of the two parties’ collaboration agreement, with Japanese media present.

 

The Tokyo-based holdings company has a 45.4 per cent market share in Japan and competes closely with Sagawa Express and Nippon Express.

It founded Yamato Asia in January 2014 as part of its global strategy to become the top distribution and lifestyle support provider in Asia.

 

The Yamato-GDex collaboration could well be poised to tap into one of the most lucrative markets – Asean, where barriers of entry are supposed to be reducing.

 

Malaysia’s population of 30  millionlion pales in comparison with the Asean region’s population of more than 600  millionlion people.

 

The partnership is banking on exponentially higher demand in intra-regional trade in Asean following both the Trans-Pacific Partnership Agreement as well as the formation of the Asean Economic Community.

 

That said, tapping into the Asean market will not be an easy feat. For example, in Indonesia, the single largest of the Asean countries by population, there are hundreds of courier companies plying their trade.

 

In the past, GDex had expressed plans to expand into Indonesia and Thailand to strengthen its regional foothold. Apart from SingPost, GDex is also in a working relationship with Pos Indonesia, and had established a representative office in Jakarta in 2014.

 

It also has strong partnerships with major international express courier service providers such as UPS and Fedex. “These partnerships indicate the recognition of GDex’s service levels by these players, as GDex is able to integrate into their delivery system and provides last  millione delivery services for them. At the same time, GDex also leverages on these partnerships to provide international services as part of a total solution package,” says HLIB Research.

GDex needs to have a clear strategy on increasing its Asean reach, which will most likely be revealed at a briefing to be held sometime next week.

 

On Jan 21, the company announced in filings with Bursa Malaysia that it had placed out 124.89  millionlion new shares at RM1.74 each to Yamato Asia, representing a 9.08 per cent stake. The Tokyo Stock Exchange-listed Yamato at the same time announced its intention to up its stake in GDex to 23 per cent by buying more shares from other shareholders.

 

Then, a mere three weeks later on Feb 12, Yamato Asia increased its stake to 22.8 per cent by buying 191.09  millionlion shares from Teong and GDex’s second-largest shareholder SingPost.

 

All in all, Yamato Asia has spent a total of RM549 million for its 23 per cent stake. Although at a slight premium to GDex’s current share price of RM1.68, market observers feel this validates Yamato’s conviction in the former’s growth potential, despite it trading at high valuations.

 

Its purchase has now left Teong and SingPost’s shareholdings standing at 35.39 per cent and 11.2 per cent, respectively.

 

SingPost said the sale proceeds of S$64 million would reinforce its e-commerce logistics solutions and networks.

 

“This deal gave us a good return on our investment and also boosted our available resources to drive SingPost’s eCommerce logistics growth as it pivots into the United States with the recent investments in TradeGlobal and Jagged Peak,” said SingPost deputy group chief executive officer (corporate services) and group chief financial officer Mervyn Lim.

 

SingPost, an associate company of Singapore Telecommunications, which in turn is 50 per cent-owned by Singapore’s national investment fund Temasek, first bought into GDex in 2011, in a deal that valued GDex at a price-earnings multiple of 35 times.

 

In March 2011, SingPost increased its stake in GDex to 27.08 per cent from an initial 4.98 per cent. This made GDex an associate company of SingPost. Woo Keng Leong, SingPost’s senior executive vice-president/head of postal services was appointed to GDex’s board of directors as a non-independent non-executive director on Feb 12, 2015. At SingPost, he is fully responsible for the operations of the domestic mail, international mail and post office network businesses.

 

SingPost’s interest in GDex has set the latter apart from its local competitors Pos Malaysia, Nationwide Express and City-Link Express. Insiders say that SingPost’s stake in GDex has been a strategic one, and will continue to be, despite the reduction following the sale of a block to Yamato.

 

GDex’s Asean focus

 

GDex has an extensive network in Malaysia and Singapore, with express delivery as its core business, in which the conventional business-to-business segment contributed 80 per cent of its revenue.

 

The e-commerce business contributed the remaining 20 per cent.

 

As for its plans with Yamato, it has been revealed that Yamato would leverage on GDex’s extensive network to offer wider coverage for Yamato Malaysia’s customers, as well as implement cross-border logistics between Malaysia and Singapore.

 

The two parties will also cooperate on the line haul business between major centres to further improve efficiencies. The line haul business involves transport of heavy loads of freight cargo over long distances or between cities, usually by trucks.

 

GDex has already been actively investing on increasing its efficiency and expanding capacity to meet the growing demands for its service. Since 2009 to 2015, GDex’s daily sorting capacity (referring to the number of parcels that go through its system) has tripled to over 100,000 a day. During this time, its staff count and fleet size doubled to 2,676 and 578, respectively.

 

GDex shares are currently trading at about 68 times PE, one of the highest compared with other courier companies both within the region and internationally.

 

The company has been trading at relatively high valuations likely owed to its growth potential, especially in the e-commerce segment.

 

To be sure, GDex shareholders have enjoyed phenomenal returns as its share price has performed spectacularly well since its listing back in 2005 on the Ace Market. An initial public offering shareholder would have enjoyed total returns of close to 2,000 per cent until today.

 

While SingPost’s stake in GDex has been beneficial for both companies, things really started heating up when giant online retailer Alibaba group took a 10.35 per cent stake in SingPost in 2014.

 

In a recent report, HLIB Research said the emergence of Yamato and SingPost as major shareholders further validates GDex’s service levels.

 

“SingPost (proxy to Alibaba) and Yamato (proxy to Rakuten) are expected to boost GDex’s business volumes, given the feed-in business from these partners and expanded connectivity and solutions for local clients,” it said.

 

Rakuten is a Japanese e-commerce and Internet company based in Tokyo. Its e-commerce platform Rakuten Ichiba is the largest e-commerce site in Japan.

 

GDex has leveraged on the growing e-commerce business in Malaysia, having secured business relationships with renowned online portal Groupon, Lazada, Zalora and Astro Home Shopping, by providing total solutions – warehousing, logistics and last- millione deliveries.

 

HLIB Research believes e-commerce is an emerging catalyst for GDex, with expectations of double-digit growth over the next five years, given the increasing Internet and mobile penetration rate in Malaysia. This is no doubt supported by improving payment gateways and product delivery platforms.

 

“Henceforth, GDex is expected to continue to enjoy strong business volume growth, by leveraging on the emerging trend of online purchases – business to business, business to consumer, and likely going forward consumer to consumer,” it said.

 

HLIB Research now projects earnings growth for the financial year ending June 30, 2016 till 2018 to be between 21 per cent and 30 per cent, in view of the strong volume growth and expanding margins. A point to note is that it has not factored in any upside from GDex’s recent strategic alliances and potential regional expansions.

 

All eyes will be on GDex’s announcement this week, as it explains details of its collaboration with Yamato. The market will then be in a better position to gauge if GDex and its partners will be able to conquer the attractive but yet challenging market of Asean.