Laos express delivery industry is dominated by a few multinational players such as DHL, Federal Express and OCS.
“The local express operator is EPL. With GDEX coming in, we will be a dominant player,” said Teong.
Last Friday, the Mesdaq-listed company entered into a memorandum of understanding (MOU) with EPL to set up a joint venture to develop international and domestic express delivery services under shared brands for the Laos market.
Teong believes that the deal will benefit both vendors. EPL can exploit the strength of GDEX’s brand, its experience and technical expertise, while GDEX will take advantage of EPL’s 100-odd branches nationwide.
The two companies have six months to decide whether or not to proceed with the MOU. During this period, GDEX will conduct a feasibility study on the express delivery services in Laos and the existing operation mode, system and procedure adopted by EPL.
“(If the deal is successful,) we will seek management control of the joint venture to ensure that it meets certain quality control and management standards and easier to implement reforms,” he said.
Meanwhile, Teong said he expects GDEX to maintain its double-digit net profit and revenue growth momentum in its current fiscal year ending June 30 2009 (FY09).
“The growth will continue to be there, but may not be as strong due to the global economic crisis,” he warned.
GDEX posted a net profit of RM2.9 million on revenue of RM68.02 million for the fiscal year ended June 30 2008, up 40 per cent and 19 per cent respectively from a year ago.
OSK Research Sdn Bhd analyst Ahmad Maghfur Usman has forecast a net profit of RM3.13 million on revenue of RM86.3 million for 2009.
He sees GDEX’s latest move as a further progression in the company’s expansion plan after the continuous marginal losses from its Singapore venture and the saturated Malaysian market.
He is neutral on GDEX’s move at this juncture given the lack of infrastructure and deterioration in government spending in developing Laos poor infrastructure as commodity prices slide further amid falling exports from trade partners, particularly Thailand.
“However, given the lack of infrastructure, GDEX could possibly benefit as a key player with the right expertise in an untapped market in the long run that is further backed by government support through the partnership collaboration with EPL,” he wrote in a note to clients yesterday.
Ahmad Maghfur is maintaining his target price of RM0.50 for GDEX, but has downgraded his recommendation from “neutral” to “sell”, given the recent surge in the company’s share price.