Gdex set to face yield pressures on added industry capacity

KUALA LUMPUR: E-commerce delivery players such as GD Express Carrier Bhd (Gdex) is set to continue facing yield pressures following a slew of new entrants into the market and the addition of capacity by existing players.

MIDF Amanah Investment Bank Bhd (MIDF Research) said e-commerce platforms gain stronger bargaining power in negotiating for lower delivery rates as a result of this.

“Exacerbating matters are platforms such as Lazada that continue to see growth in volumes, enabling them to negotiate thinner rates with express delivery partners in return for a share of its large parcel volumes,” it said in a note yesterday.

“Although the business-to-consumer (B2C) segment has already made up around 50 per cent of total volumes, the revenue contribution only increased from around 33 to 35 per cent or in FY2018 amidst pricing pressures.

“Nearly 70 per cent of Gdex’s revenue remains anchored to the (business-to-business) B2B segment involving clients such as banks, multi-national corporations (MNCs) and small and medium enterprises (SMEs).

“Henceforth, Gdex is not overly pursuing B2C contracts as not to disrupt the service quality in the B2B segment while allowing the market to consolidate.”

Meanwhile, MIDF Research said the consumer-to-consumer (C2C) segment is seen as a cushion for margins. With the help of its 30 per cent-owned associate, Webbytes, Gdex launched an online portal called myGdex targeting sellers who are selling via social media instead of online platforms.

“Sellers would only need to login, pay online followed by printing a consignment note. Gdex will then pick up at the location of choice and deliver to the designated area.

“So far, this has increased the revenue contribution of the C2C segment by RM0.4 million per month, or RM4.8 million per annum, which is less than two per cent of FY18 revenue.

“Although still negligible, we view this move to be strategic in the long run to compete with other players such as Pos Malaysia that has a wider physical network.”

In the meantime, the phase 3 expansion at the HQ Hub 1 in Petaling Jaya will be completed in November 2018, ramping up the average sorting capacity to 120,000 to 150,000 parcels per day.

For the Hub 2 located across the road from HQ Hub 1, its warehouse operations have been shifted to the Mapletree Logistics hub in Shah Alam to temporarily make way for bulky shipments in preparation for the mega online sales at the end of the year.

At the same time, Gdex is currently getting a vendor to enhance its automation system completion by early FY20.

“Despite of the expected increase in average sorting capacity, we opine earnings upside to be capped by pricing pressure fuelled by intense competition in addition to additional operating expenses from leasing the Mapletree warehouse,” the research firm said.

“Although we opine the C2C segment to prevent margins from further compression, it may require some time before meaningful contribution is seen. Henceforth, we are making no changes to our FY19 and FY20 earnings forecasts at this juncture.

“We maintain neutral with an unchanged target price of RM0.44 per share.”