KUCHING: E-commerce delivery players such as GD Express Sdn Bhd (GD Express) are facing yield pressures as a slew of new entrants enter the market and existing players add capacity This has worked in favour of e-commerce platforms who gain bargaining power in negotiating for lower delivery rates.
According to MIDF Amanah Investment Bank Bhd (MIDF Research), exacerbating matters are platforms like Lazada who continue to grow at blazing speed, doubling its sales in 2016 with a similar target for 2017.
As volumes grow, it said e-commerce platforms are able to negotiate thinner rates with express delivery partners in return for a share of its large parcel volumes.
“For GD Express, whilst the busienss to consumer (B2C) segment has been its key growth driver in recent years, the bulk of its revenue remains anchored on its business to business (B2B) segment, which it derives 70 per cent of its revenue,” it said in a report yesterday.
To note, GD Express’ emphasis on the B2B segment enables it not to overly pursue B2C contracts, instead allowing the market to consolidate.
In the meantime, the delivery player continues to expand its sorting capacity, improve the quality of its service, and enhance its information technology systems.
To ride out any potential volatility, GD Express has a rainy day fund of RM277.6 million.
This comes as there are more upgrades in the works at its Petaling Jaya sorting hub.
Initially, GD Express had planned to set up a new sorting hub in Sungai Buloh by 1HFY18 (2HCY17) with additional capacity of 60k parcels per day.
“However, it is now exploring a more cost-effective method of upgrading its Petaling Jaya sorting hub which would give it similar capacity additions,” MIDF Research added.
“To note, GD Express has obtained the permit to grow its vehicle fleet by another 200 trucks, which could boost its fleet from 864 to exceed 1,000 by end-2017.”
Regaining its syariah-compliant status is another priority for GD Express following its removal from the status in May 2017 as its cash over total assets in conventional accounts breached the 33 per cent limit.
The removal prompted a brief selloff which saw the company’s share price dip by some 7.7 per cent in the ensuing three trading days.
“Keen to regain the syariah compliant classification in the next update in November 2017, GD Express has taken the required steps to fulfil the requirements, pending an evaluation by the Shariah Advisory Council.”
Also, MIDF Research believed that GD Express could exercise its equity conversion sooner than required.
Its Indonesian investment consisting of RM10 million for a five-year bond convertible into 40 per cent equity in PT SAP Express continues to make good progress – with recurring business secured for the B2B segment and inroads being made into the e-commerce segment in Indonesia.
“Emphasis is currently being placed on improving its cash flow position, reporting standards and IT systems, with guidance provided by GDEX’s management team,” it noted.
“Once the company is on stable footing, GD Express could consider exercising its equity conversion which might take place ahead of the five-year conversion period.”