KEY INVESTMENT HIGHLIGHTS

• GDEX to acquire 50% stake in Vietnamese logistics provider, Netco, for RM13.9m

• Net cash position of GDEX to remain, post-acquisition

• Netco’s decent network to serve as a good starting point

• Footprint in Vietnam to be further solidified via GDEX’s 32.7%-owned associate, Web Bytes

• Earnings estimates unchanged as we believe there will be a gestation period before delivering meaningful earnings

• Maintain NEUTRAL with an unchanged TP of RM0.30 per share

Expanding its regional footprint one country at a time. GD Express Carrier Berhad (GDEX) has entered into a share sale and purchase agreement with 3 individuals, (i) Nguyen Duc The, (ii) Trieu Lan Huong, and (iii) Nguyen Duc Hau, to purchase 50% of the total enlarged issued share capital of Noi Bai Express and Trading Joint Stock Company (Netco) for VND76.7b (approximately RM13.9m). Netco is a company involved in the provision of courier and logistics services in Vietnam. This represents another corporate exercise undertaken by GDEX to expand its regional footprint in ASEAN after PT SAP Express in Indonesia.

Immaterial financial and earnings impact. Post-acquisition, GDEX will still remain in a net cash position of above RM200m. Therefore, we view this exercise as a strategic way to utilise its cash pile. Meanwhile, we gathered from the management that Netco is currently profit making albeit at an immaterial level to GDEX’s earnings and may go through a gestation period before delivering meaningful earnings. In terms of modus operandi, we opine that GDEX will implement the same method it applied to the 44.5%-owned PT SAP Express in Indonesia which is by providing business advisory as well as knowledge transfer with Netco. Recall in 1HCY19, PT SAP Express recorded a profit after tax of RM3.9m compared to a loss after tax of -RM0.6m in 1HCY18, indicating that GDEX’s interest and collaboration with PT SAP Express is bearing fruit.

Further solidification with Web Bytes. With Netco’s operations consisting of four hubs, 45 branches and 47 points of delivery, we believe that this will serve as a good starting point for GDEX to assimilate with the market dynamics of Vietnam’s logistics industry. In addition, GDEX’s 32.7%-owned associate, Web Bytes has already entered into Vietnam, enabling it to tap on Netco’s network to provide new retail solutions of mobile point-of-sale (POS) and self-service kiosks and vice versa. The population of Vietnam is around 96.5m people (compared to Malaysia of circa 32.1m people) will enable Web Bytes to have a better adoption rate due to the natural size of their retail chain stores which are larger than in Malaysia.

Earnings estimates. We are making no adjustments to our earnings forecasts for FY20 and FY21 as we opine that Necto will have to undergo a gestation period post acquisition before delivering meaningful earnings contribution to GDEX

Target price. We are maintaining our TP at RM0.30 per share. We value the company using a 2-stage discounted cash flow method (DCF) which assumes a WACC of 12.0% to reflect the risk from the ongoing intense competition driven by the growth in the Southeast Asian ecommerce industry which is expected to be worth USD102b by 2025.

Source: MIDF Research - 16 Oct 2019