Kiwoom Private Equity and Koreawide Partners have started tapping potential buyers for a 100% stake in Dongbu Express, with Earnst & Young Han Young helping with the sale process, industry sources said on September 18.
The move comes three years after the consortium acquired the South Korean express bus operator for 88.7 billion won (76.3 million) in 2017 from Dongwon Group, which divested non-core assets to focus on its logistics business.
Dongbu Express is the sixth largest player in the industry based on revenue. But its operating profit margin of 9.76% in 2019 was much higher than the industry average of 3.7%. This was largely due to its dominant position in routes to Gangwon areas, which generate superior margins.
The company’s premium bus services, launched last year, are also contributing to revenue and profitability. Dongbu Express currently operates 19 premium buses for six routes. They include one between Seoul and Sokcho, which brought in 14.5% more revenue in 2019 compared to a year earlier.
The company’s financial performance has been hit less hard by Covid-19 than rivals because more people travel to Gangwon areas, a province known for both the mountains and beaches, during the pandemic. While the number of domestic travelers fell nearly 20% year-on-year in July, Gangwon Province and Jeju Island saw a 7% and 1% increase respectively in travelers, according to data from the Ministry of Culture, Sports and Tourism.
Monthly revenue of Dongbu Express has continued to rebound, with July revenue rising to 80% of revenue in the same month last year, compared to March when revenue dropped to half the level of a year ago. That contrasts with the latest figures from rivals whose monthly revenues have yet to reach 60% of the level a year ago.
Real estate assets are also expected to play an important role in drawing investor interest to the company, industry watchers said. Dongbu Express has land in cities where it operates bus terminals, including Wonju, Gangneung and Sokcho.
The land in Gangneung is currently available for the development, although its book value is relatively small at 7.8 billion won. The company’s land in Wonju has a higher book value of 52.4 billion won, but the development cannot be started until the bus terminal there is moved to another location.
“As more investors pour into assets with similar characteristics to infrastructure, interest in express bus operators, which generate stable cash flows, is also on the rise,” an industry insider said. “That said, given many such companies already available on the market and uncertainty resulting from the pandemic, (Dongbu Express) will have to prove its competitive edge in order to attract investors.” (Reporting by Se-hun Jo)