INVESTMENT HIGHLIGHTS

• GDEX is a market leader in domestic express delivery

• Profits are forecasted to increase at a 3-yr CAGR of 16%

• The company is a beneficiary of e-commerce growth

• We initiate coverage with a BUY call and TP of RM2.06

Market leader in express delivery. According to our analysis, GDEX is ranked second in terms of domestic express delivery market share holding an 18% share. GDEX has outpaced the overall industry which expanded at a CAGR of 10% between 2012 and 2015, increasing its market share by 0.4ppt per year.

Growing in tandem with the e-commerce industry. We are forecasting a 3-year FY17-FY19 profit CAGR of 16% contributed by:

1. Fast growing e-commerce industry which is entering the growth phase of the industry life cycle, with CAGR estimated at 20.8% between 2015 and 2020. As an express delivery partner appointed by key e-commerce platforms, GDEX is poised to benefit from increasing parcel volumes.
2. Expansion in sorting capacity. We estimate that GDEX will expand its sorting capacity by 28%/30%/15% in FY17/FY18/FY19. The company is undergoing several initiatives to increase its sorting capacity at reasonable capital outlay, including reorganising the layout of its 67k sq. ft. HQ/sorting hub and investing in new semiautomated sorting lines.
3. M&A opportunities. GDEX has RM282m in dry powder and is prepared to deploy its net cash into value enhancing and synergistic assets. GDEX has already invested RM5.5m for a 30% stake in Web Bytes Sdn Bhd (Web Bytes) to enhance its technological offering to fend off new tech-based delivery start-ups.

Initiate coverage with BUY and TP of RM2.06. We value the company using the discounted cash flow method (DCF). GDEX has consistently achieved PBT margins of 15-16% which are on average 10ppts higher compared to its peers. While our TP implies a forward price-to-earnings (PER) of 70x FY17 core earnings, we believe it is justified as GDEX is a beneficiary of the high growth e-commerce sector.

Source: MIDF Research - 13 Dec 2016