GDex seizes opportunity to enter Indonesian market
Company taking advantage of weaker rupiah to buy stake in SAP
SOMETIMES the best time to make a move is when uncertainty and weakness prevail. Only then, are opportunities abound.
In the midst of a global trade war, emerging market uncertainty and currency crisis in Indonesia, GD Express Carrier Bhd spreads its wings right smack into the roiling storm in the republic.
In an acquisition announced Wednesday, GDex is paying some RM25.8mil to take up a 44.5% stake in Indonesia’s PT Satria Antaran Prima Tbk (SAP Express) to tap into the country’s fast-growing express delivery industry.
The group said it was forking out 92.71 billion rupiah (RM25.8mil) cash, together with two of its units – GDex SEA and GD Valueguard – to participate in SAP Express initial public offering (IPO).
SAP Express was listed on Oct 3, with a listing price of 250 rupiah per share. As of yesterday, SAP Express was trading at 580 rupiah, meaning that GDex is already sitting on a 132% gain.
Here’s the other thing: GDex is entering into Indonesia when the rupiah is at 15,183, close to its all time low of 16,800 during the 1997 financial crisis.
Should the rupiah appreciate back to the 10,000 level, GDex would be sitting on a further 30% currency gain.
Over and above that, the IPO is significant because it means that GDex finally has a foothold in Indonesia.
“This is definitely a stepping stone for GDex to expand regionally. With the e-commerce market size in Greater South-East Asia is expected to grow by 261%, we do not discount the possibility of GDex expanding its earnings from other Asean countries,” says MIDF Investment research analyst Adam Mohamed Rahim.
GDEX operates a network of 223 stations throughout Malaysia. It has a fleet of some 831 trucks and vans.
Teong Teck Lean, the managing director of GDex, is the largest shareholder of the company with a 36.7% stake.
Notable shareholders in the company are Japan’s largest parcel delivery company Yamato Holdings with a 22.8% stake and Singapore Post with a 11.21% stake.
For its full-year ended June 30, GDex recorded lower net profit of RM23.63mil from RM36.83mil in the previous year due to its aggressive network expansion. Revenue, however, increased to RM292.99mil from RM250.51mil previously as a result of an increase in “value added service” to support the courier service segment.
On Oct 2, GDex and two of its wholly-owned subsidiaries namely, GDEX SEA Sdn Bhd and GD Valueguard Sdn Bhd confirmed their participation in the IPO of SAP Express for RM25.8mil.
SAP Express listed some 433.33 million new shares or equivalent to 52% of the issued and fully paid up capital after the IPO.
Teong says he is very pleased with the Indonesian acquisition.
“It is not easy to find a company like this. We chose this company out of many others, some which had higher profits. Valuations wise too, I don’t think we would be able to find this in Malaysia. We are very fortunate to have this opportunity,” says Teong.
The opportunity came about because in November 2016, GDex entered into a convertible bonds agreement with SAP Express to subscribe for its convertible bonds worth 30 billion rupiah (RM10.4mil) to be issued by SAP Express. These bonds would eventually be converted into an equity stake in SAP Express.
In SAP Express’ prospectus, it said that it planned to utilise 61.5% of the IPO proceeds which equals to 67.2 billion rupiah to redeem the five-year convertible bonds subscribed by GDex in November 2016.
“We have actually been in Indonesia for the last six years. I got to know the founder some two years ago and we formed a strategic partnership with SAP Express back then. We provided advisory, digitalisation and strategy while they too taught us a lot of things. They are able to do their courier services over 10,000 islands, and that is something that GDex can learn from,” says Teong.
SAP Express was founded by Budiyanto Darmastono, who has 25 years of experience in the courier and logistics business.
Before the IPO, 99.5% of SAP Express shares were owned by Budiyanto Darmastono, and the rest by Yuwono Darmastoto
The company is headquartered in Jakarta. It mainly provides services in the express delivery segment, as well as transportation, distribution and warehousing. The company is a pioneer in using an Android-based application for delivery services.
It serves large clients such as Zilingo, Lazada, Blibli, Bank Mandiri, Bank BCA, Adira Finance, Indofood and Unilever.
As of March, SAP Express is able to cover the whole of Indonesia, supported by its 58 branches and 12 representative branches as well as more than 100 retail counters. SAP Express provides domestic and international delivery, with its international partners.
The services provided by the company include in-town and domestic courier, international express and cargo, warehouse management, mailroom services, land and air cargo, cash on delivery and dedicated couriers
In a previous presentation to investors, Budiyanto cited data released by Statista Digital Market Outlook in 2017 where e-commerce sales in Indonesia are estimated to reach more than US$8.5bil, up by 49% compared with 2016 which was US$5.8bil. By 2022, e-commerce sales in Indonesia are estimated to reach more than US$16.4bil or grow an average of 18% annually since 2018.
“We like SAP Express because the founder is very passionate. While the earnings are still small, but it is growing very rapidly, some 30% to 40% per annum. With this listing, there is a high chance for it to even exceed expectations.
“We aren’t putting a target for them to achieve over the next few years. In a way, this is also a test case for us. We want to be see whether we can successfully grow and scale up a business sustainably outside of Malaysia,” Teong says.
GDex continues to be on the lookout for more companies, and will only seriously consider if the company is able to strengthen or provide a better ecosystem for GDex’s industry.
Meanwhile, Adam says earnings accretion will not be immediate as SAP has incurred losses for the past few years although at a declining pace.
“Nevertheless, we opine that this will bode well in the long term as SAP Express is one of the pioneers in Android-based courier system for online and realtime tracking. With close to 250 million population, Indonesia has the largest population in Asean. Like most other Asean countries, the last mile delivery industry is believed to be propelled by the strong growth in the e-commerce industry.
“Based on various studies conducted, it is believed that the e-commerce penetration rate in Indonesia is about 1%-2% of its total retail transactions. That marks a great potential in the delivery industry,” he says.
Adam has a “neutral” stance on GDex predicated on the tight competition in the last mile delivery industry, (recall that the number of courier licences awarded has been on the rise from 88 in 2015 to 128 in 2017).
“E-commerce platforms gain stronger bargaining power in negotiating for lower delivery rates as a result of this. Nonetheless, we opine that its C2C segment propelled by its online portal called ‘myGDEX’ could prevent margins from sliding further,” he says.