GDEX announced a 3-for-1 bonus issue last Friday, which should have no fundamental impact to the company. However, this could improve share liquidity and market participation. On the other hand, we still view GDEX as a direct beneficiary and earnings-proxy of the growing e- commerce industry. Maintain MARKET PERFORM with an unchanged target price of RM1.93.

3-for-1 bonus Issue. Last Friday, GDEX announced a proposed bonus issue of 3 bonus shares for every 1 existing shares (3-for-1), through issuance of additional 4,173m bonus shares. The bonus issue is expected to be completed by 1H 2017. Post-bonus, share capital is expected to increase to RM235.7m from RM82.4, with number of shares increasing to 6,284m from 1,571m, assuming full warrants conversion.

No fundamental changes. The proposed bonus issue is not expected to have any fundamental impact towards GDEX, apart from the increase in share base. No shareholdings dilution will occur, with no cash to be raised from the issue. The bonus issue is with the intention of rewarding shareholders with improved trading liquidity and market participation.

E-commerce remains as a main growth driver. We believe GDEX is still an immediate beneficiary and earnings-proxy of the growing e- commerce in the country. We expect the company to continue its expansion efforts to further increase sorting capacity to accommodate higher volume growth. Furthermore, its investment in PT SAP Express (5-year convertible bond for 40% equity stake) is expected to be positive for the longer-term. With most of its cash raised from the private placement to Yamato last year still intact, we do not discount the possibility of future inorganic growth as the company works towards being a regional player.

Maintain MARKET PERFORM, with an unchanged TP of RM1.93 (or RM0.48 on an ex-bonus basis) derived from DCF valuations with the assumption of: (i) 7.8% WACC, and (ii) 5% terminal growth. With no fundamental changes from the proposed bonus issue, we also retained our FY17-18E earnings.

Upside rerating catalysts include: (i) exponential volume growth beyond our forecasts, and (ii) earlier-than-expected earnings materialisation from potential regional investments.

Source: Kenanga Research - 27 Mar 2017