Highlights

GD Express Carrier (GDEX) is involved in two main businesses: express delivery services and logistics services.

GDEX is putting in place regional expansion plans and looking into strategic alliances, on top of targeting new and existing customers with higher-margin integrated logistics solutions, in an effort to underpin future growth prospects in the medium to longer term.

Against a low base of comparison and assuming smooth implementation and execution of regional expansion plans as well as movement into higher-margin businesses, GDEX is expected to post sharply higher revenue and earnings in the medium to longer-term.

Forecasts

Our forecasts currently do not include any upside from strategic alliances and regional expansion given lack of details.

Excluding potential upside from regional expansion and strategic alliances, GDEX is expected to sustain annual revenue growth rates of 15-20% in the near term, supported by organic growth and capacity expansion. Margins are expected to improve with the group’s move to offer more profitable frontend services such as warehousing and freight forwarding.

Catalysts

Successful strategic alliances domestically and regionally to propel the group forward and sustain longer-term growth.

The group’s ability to sign on and retain new customers for more comprehensive and higher-margin integrated logistics services would also underpin future growth prospects.

Risks

• Delays in strategic tie-ups or M&A activities domestically and regionally.
• Increasing competition from regional and global players entering the domestic express delivery & logistics markets.

Rating

Not Rated

Positives:

1) Impressive average delivery turnaround time, with 85% successful next-day delivery versus the domestic industry average of 70%;

2) Competitive pricing compared to foreign courier companies but offering equal service levels;

3) Well-diversified customer base across industries including finance, telecommunication, healthcare, and e-commerce.

Negatives:

1) Medium to longer term growth prospects are dependent on successful implementation and execution of expansion plans and penetration of higher-margin businesses;

2) Higher working capital requirements for the addition of new delivery trucks, increased manpower requirements as well as new tie-ups and alliances; and

3) The shares are tightly held currently, resulting in relatively low trading volumes.

Valuation

Given rich prospective PER (50-60x) and PEG (2-16x) valuations currently based on our earnings estimates, we believe share price already reflects some potential gains from expected regional expansion and strategic alliances, which have yet to materialize.

Source: Hong Leong Investment Bank Research - 15 Apr 2014