• Two pillars of growth. GDEX is involved in two main businesses: express delivery services and logistics services. Over the past 6-7years, GDEX has expanded and diversified its clientele bas e (banks, telcos, electrical and electronic manufacturers, etc.) due to its ability to deliver reliable and quality services, ensuing strong growth in business volume, as well as enjoying increasing economies of scale and margin growth.
• E-commerce to fuel growth. Since 2013, the group has restructured 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.
• HLIB forecasts a 26% FY15-18 PATAMI CAGR to RM56m. Despite an expectation of slower domestic economic growth in 2016, Management is cautiously optimistic of continued double-digit earnings growth for the next 2-3 years, driven by stable volume growth from conventional clients and surging volume growth from e-commerce coupled with further M&A expansion within ASEAN region, given the booming e-commerce (greater than Malaysia), especially post implementation of AEC (ASEAN Economic Community).
• To recap, HLIB institutional research has projected a FY15-18 CAGR earnings growth at 26%, in view of the strong volume growths and expanding margins. We have not factored in upside from recent strategic alliances and potential regional expansions.
• May stage a mild technical rebound to retest RM1.62-1.72 in the near term. GDEX slipped 13.9% from a 52-week high of RM1.80 (13 Jan) to close at RM1.55 yesterday. On the back of its deeply oversold daily indicators, the stock is in the midst of building its base near neckline support of RM1.52, followed by lower support S2 at RM1.46. Overall, we expect a brief rebound in the near term after a 2.5% weekly profit taking pullback, reflected by mild upticks in the hourly chart. ST technical rebound targets are RM1.62 (30-d SMA), RM1.72 (22 Feb high) before retesting our LT objective at RM1.80.
• Attractive risk to reward ratio with 16.1% upside against 7% downside. All in, we see a good risk to reward ratio for investor with a theoretical entry price of RM1.55 given that the downside to the cut loss zone of RM1.44 is 11 sen (-7%) while the upside to the LT target of RM1.80 is 25 sen (+16.1%).

Source: Hong Leong Investment Bank Research - 30 Mar 2016