Highlights/ Comments

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

• Over the past 6-years, GDEX has expanded and diversified its clientele base (banks, telcos, electrical and electronic manufacturers etc) due to its ability to deliver reliable and quality services, ensuing strong growth in business volume.

• Enjoying increasing economy of scales and margin growth, GDEX registered FY14 PBT at RM24.3m (6.75x of RM3.6m in FY09) and PAT at RM23.4m (11.14x of RM2.1m in FY09).

• In FY13-14, it has restructure itself to leverage on the booming e-commerce in Malaysia, driven by soaring online shopping preferences, mushrooming online trade portals, better availability of online devices, availability of secured payment gateways and higher internet penetration rate (improving connectivity). GDEX managed to secure business from renowned online portal Groupon, Lazada, Zalora and Astro Home Shopping, by providing total solutions – warehousing, logistics and last-mile deliveries.

• Management expects continued strong double digit volume growth for the next 5 years, driven by stable volume growth from conventional clients and surging volume growth from ecommerce. It is increasing its handling capacity to >100,000/day (currently 72,000/day) and trucks to >1,000 units (currently 540 units). We concur that GDEX may need further expansion to cater for the projected soaring demand.

• Furthermore, GDEX foresees opportunity within ASEAN region, given the booming e-commerce (greater than Malaysia), especially post implementation of AEC (ASEAN Economic Community). Management is targeting start-ups in Indonesia and Thailand through M&A or JVs by 2015-16, which may further accelerate GDEX earnings growth.

Forecasts

• We have projected FY15-17 earnings growth at +23.6%- 38.6%, in view of the strong volume growths and expanding margins. We have not included any upside from strategic alliances and regional expansion given lack of details.

Catalysts

• Continued strong earnings growth.

• Expansion into regional markets.

Risks

• Delays in strategic expansion domestically and regionally.
• Increasing competition from regional and global players entering the domestic express delivery & logistics markets.

Rating

• Not Rated Positives: 1) Reliable and quality services; 2) Robust business volume growth; and 3) Capacity expansion to meet demand growth. Negatives: 1) Competitive and regulated business environment; and 2) Low stock liquidity.

Valuation

• We believe that GDEX should be fairly priced at RM1.80 based on FY17 P/E of 27.5x, given the strong growth potentials of its business model with further upside from regional expansion.

Source: Hong Leong Investment Bank Research - 2 Apr 2015