INVESTMENT HIGHLIGHTS

• E-commerce delivery players continue to face pricing pressure

• B2B segment to remain as core business

• C2C segment to prevent further margin erosion

• Upgrades at PJ sorting hub underway

• Maintain NEUTRAL with unchanged TP of RM0.44 per share

E-commerce delivery players continue to face pricing pressures. E-commerce delivery players (B2C) continue facing yield pressures following a slew of new entrants into the market and the addition of capacity by existing players. 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. Although the B2C segment has already made up around 50% of total volumes, the revenue contribution only increased from around 33% to 35% percent or in FY2018 amidst pricing pressures.

Maintaining its presence in the B2B segment. Nearly 70% of GDEX’s revenue remains anchored to the B2B segment involving clients such as banks, MNCs and 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.

C2C segment seen as a cushion for margins. With the help of its 30%-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 RM0.4m per month, or RM4.8m per annum, which is less than 2% 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.

Source: MIDF Research - 21 Sept 2018