We  maintain  our  BUY  recommendation  on  GDEX,  with  an  unchanged DCF-based  TP  of  MYR2.42 (14% upside). 1QFY15  (Jun)  earnings came in  within  our  expectations.  Both  courier  and  logistics  segments  saw positive  sales  growth  but  incurred  higher  expenses  from  expansion. The  company  proposed  a  1-for-3  bonus  issue  as  well  as  1-for-5  free warrants. We remain positive on GDEX’s growth prospects.

Results  within  expectations.  GD  Express  Courier’s  (GDEX)  1QFY15 net profit reached  MYR5.0m (35.3% YoY),  as  it  incurred  more upfront expansion-related  expenses  in  the  quarter.  We  deem  this  within  our expectations  and  anticipate  stronger  quarters  ahead.  Revenue  grew 18% YoY due to increased  sales  in both courier services (+15.3% YoY) and logistics (+123% YoY)  segments. Overall EBITDA margin dropped slightly by 1.7ppts YoY due to more  upfront costs  incurred in 1QFY15,but  we  believe  the  earnings  margin  should  improve  in  the  coming quarters.

Bonus  issue  and  free  warrants.  GDEX  also  announced  a  1-for-3 bonus issue  and  1-for-5  free  warrants (Warrants-B), enlarging its  share base  to  improve  stock  liquidity.  Note  that  GDEX’s  Warrants-A  areexpiring in 2017 and we have fully factored this  dilution impact into our valuation.  Assuming  a  full conversion  of Warrants-A, the proposed free warrants exercise would entail the issuance of up to 186.5m Warrants-B. As we believe that Warrants-B are not likely to be in the money and  be converted soon,  it would  be premature to factor in the dilution impact in our valuation at this juncture.

Growth prospects remain  intact.  We continue to like GDEX for its:  i) proven  growth  track  record,  ii)  strong  growth  potential  in  the  region,leveraging  on  the  booming  e-commerce  activities,  iii)  strong  balance sheet  (net  cash)  to  withstand  business  uncertainties,  and  iv)  healthy profit margin to withstand the intense competition within the industry.

Maintain  BUY.  We  keep  our  earnings  forecasts  unchanged  andmaintain our BUY recommendation on GDEX, with an unchanged DCFbased  TP  of  MYR2.42 (WACC:  6.6%,  terminal  growth  rate:  3.7%).  We believe that GDEX’s  lean capital structure warrants  it  a  relatively lower WACC,  while  the  terminal  growth  rate  of  3.7%  is  justifiable  given  its strong growth profile.  Our theoretical ex-bonus  fully-diluted (Warrants-A only) TP is MYR1.82.

Source: RHB