Monday, 13 March 2017

Korean buy at 50% premium and you are doing nothing?

There is no doubt that the KLSE equity market continue to perform with more participation sighted in the market. As of last Friday, the total valued traded is worth RM 3.4 billion, while 3.19 billion shares exchange hand, a feat that had not been seen for quite some time in the KLSE. Honestly speaking, I do not know what is the real factor behind such bullish view. It could be due to the coming GE 14, the investment of USD 7 billion from Aramco into Pengerang RAPID, and the much anticipated Bandar Malaysia project that will see more than RM 300 billion in GDV. What ever the reason are, it could be too bad a choice if we do not choose to flow along with the big funds, right?

Albeit the local market still looking attractive to be traded, it is upmost important that we still need to do our very best in selecting prospective company to be invested. Hitting on blindly will still be able to spell trouble very easily.

Today, I would like to show you a company involving in logistic industry where the price is still sitting at 35% discount from the entry of the new owner. But before I would like to show you this company, I would like to go through with you on another similar case in this industry.

When we study law, we will study about landmark case as a precedent. Likewise, if you are looking to invest in the logistic industry, you will also be advice to study the precedent case, which is the case of GD Express Carrier Berhad (Gdex - 0078).

Basically, it all happen back in 2013 when news rippled out into the market where GDEX is going to see great expansion with an entry of a new strategic shareholder in order to help in expansion and add massive value through expansion network. In the year 2011, SingPost increased it's stake in Gdex from 4.98% into 27.08%. Back then, e-commerce is at its infant stage in Malaysia, however, it is a very promising market as more and more e-commerce platform are sprouting out and consumer continue to adopt to e-commerce platform such as Groupon, Alibaba, Lazada, and 11 street.

According to Kenanga Research, the domestic trend of B2C e-commerce delivery will grow 50 to 70% in the next 3 years, and will surpass the delivery revenue generated from B2B in 2019. (Source - The Star). The e-commerce arena is getting hotter, with Hong Leong Group joining into the bandwagon with GemFive.

Due to the future promising growth potential in the door to door parcel delivery, Gdex market capitalization multiply by more than 10 times. Currently, Gdex is sitting at a market capitalization of RM 2.3 billion.

A look at the latest quarterly result of Gdex show that the company is trading at x5.5 times the value of the NTA. If we annualized the EPS at 3 cents per year, it is currently trading at the PER of x55.

At this kind earning and current share price, Gdex is definitely a very expensive share. However, due to it's involvement in the lucrative promising business of express B2C delivery, it has even attracted Japan largest logistic player, Yamato Holdings Co Ltd into taking up 22.8% stake in the company. (Source - The Star)

Now, you had seen how powerful is the e-commerce platform, and how demanding will the express courier service will be, and how international player are willing to pay such a high price and high valuation in order to tap into the market.

For this instance, I would like to point into the current logistic player which had saw new foreign owner - Century Logistics Holding Berhad (Century - 7117)
On September 2016, CJ Korea Express had bought in 31.44% stake in Century at RM 1.45 per share. Now, that is really something that you have to look into seriously. If Gdex have the largest Japanese logistic player - Yamato, then Century too have the largest Korean Logistic player - CJ Korea Express, as their strategic investor. Compare strategic investor, then it is Century 1 - 1 Gdex now.

One of the most attractive asset that CJ Korea had saw in Century is definitely it's Multi Storey warehouse that is situated in Klang. I don't think Gdex have this, so Century 2 - 1 Gdex.

According to reliable sources, Century will be offering express B2C parcel delivery once the multi storey warehouse start to operate. The new service will put a new rerating catalyst into Century share prices.

If we do a back to back comparison on the latest quarterly result on Gdex vs Century, it is notable that Century command a higher revenue (Gdex 66 million vs Century 74 million), a higher EPS (Gdex 0.67 cents vs Century 1.64 cents) a higher NTA (Gdex 0.29 cents vs Century 0.78 cents) as well as a higher dividend. On current fundamental and earning that is Century 3 - 1 Gdex now.

Prior to the news where Datuk Phua had disposed of his holdings at RM 1.45 to CJ Korea, the share price shot towards RM 1.05 before starting to consolidate at the range of RM 0.90. According to the latest technical chart, Century had saw 3 occasions where the barrier of RM 0.90 was tested. While the first 2 incident saw the share price failing to sustain, the latest attempt which substantial volume is promising to see Century putting an uptrend after a series of consolidation.

Now that you had saw how Century (market cap - RM 360 million) is comparable to Gdex (market cap - RM 2.3 billion) in terms of financial performance, but Gdex is command a huge premium of PER x 55. The only differences that separate Century and Gdex is it's offer for express B2C door to door delivery services.  On current services of express B2C door to door, Gdex win. So Century 3 - 2 Gdex.

However, I am sure Century will be offering this service soon, because CJ Korea have delivery service contract with Lazada, and will be in charge of all the delivery of goods made in Korea that customer buys in the SEA market. So very soon, Century will be able to capture that 1 point back, and make it Century 4 - 2 Gdex.

Lastly, on price wise, Century had yet to boom, while Gdex had undergone 2 series of bonus issue and free warrants. So Century is liken to a rocket waiting to blow up soon. That add 1 more point to Century. Century 5 - 2 Gdex.

Conclusion, as CJ Korea Express buy in at RM 1.45, so, now are you going to wait and buy in at RM 1.45 or buy in now at RM 0.93 now is your decision.

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