GD Express Courier (GDX MK) Buy. Poised For a New Quantum Leap. Transport - Logistics Target Price: MYR2.42 Market Cap: USD505m Price: MYR2.

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1 Initiating Coverage, GD Express Courier (GDX MK) Buy Transport - Logistics Target Price: MYR2.42 Market Cap: USD505m Price: MYR2.01 Poised For a New Quantum Leap Macro Risks Growth Value GD Express Courier (GDX MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) We initiate coverage on GDEX with a BUY call and DCF-derived MYR2.42 TP (20.4% upside), valuing the stock at an implied 81x FY15F P/E. It has seen 10 years of strong earnings growth, which is expected to remain resilient in the coming years on the capacity expansion of its express delivery service and logistics arm as the drivers. Opportunity in the AEC is a key catalyst to drive GDEX s earnings higher. Vol m About GD Express Courier (GDEX). GDEX is a leading express delivery service provider in Malaysia that is growing strongly. It is currently expanding aggressively on the back of increased business volume and is embarking into the logistics solutions segment. FY15 (Jun) is an investment year for GDEX and we opine that the company is poised for stronger growth in FY16 and FY17. Strong earnings growth track record. GDEX has posted 5-year revenue and net profit CAGRs of 18% and 39% respectively, with steady improvement in its operating margins. Growing its business through quality deliveries, prudent cost management and high staff productivity are the key competitive components to the company s success. Nov-13 Jan-14 Source: Bloomberg Mar-14 Avg Turnover (MYR/USD) May-14 Jul-14 Sep m/0.19m Cons. Upside (%) 20.4 Upside (%) wk Price low/high (MYR) Free float (%) 27 Share outstanding (m) 841 Shareholders (%) GD Express (M) SB 31.1 Singapore Post 25.8 GD Holdings International 9.7 Share Performance (%) YTD 1m 3m 6m 12m Absolute (5.2) Relative (4.0) Shariah compliant Jerry Lee jerry.lee@rhbgroup.com Growth potential. GDEX has more room to grow, as it believes that e- commerce has changed the way business is done and that it is in the sweet spot to ride on this bandwagon. Street thinks improvements in regional internet infrastructure will facilitate transaction volumes and allow the company to grow its business. Note that GDEX not only focuses on Malaysia s 30m population, but the ASEAN region s 600m inhabitants as well. We believe this gives it huge growth potential. Risks. The industry is very competiitve and pricing power has not been great. Any economic slowdown may result in lower business volumes, which should directly impact GDEX s profitability. Initiate at BUY with a MYR2.42 TP. We derived our MYR2.42 TP using a 5-year DCF on its free cash flow to firm (FCFF) with a WACC of 6.6% and a 3.7% terminal growth rate. With a 20.4% upside from its last closing price, we initiate coverage on GDEX with a BUY call. The stock may be trading at very high P/E valuations, but we believe its high potential growth could justify the high valuations. Forecasts and Valuations Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total turnover (MYRm) Reported net profit (MYRm) Recurring net profit (MYRm) Recurring net profit growth (%) Recurring EPS (MYR) DPS (MYR) Recurring P/E (x) P/B (x) P/CF (x) Dividend Yield (%) EV/EBITDA (x) Return on average equity (%) Net debt to equity (%) 12.7 net cash net cash net cash net cash Our vs consensus EPS (adjusted) (%) Source: Company data, RHB See important disclosures at the end of this report Powered by EFA TM Platform 1

2 Table Of Contents Investment Case and Valuations... 3 Assumptions And Forecasts... 5 Investment Risks... 5 Financial Overview... 6 Investment Merits... 7 Industry Overview...8 Company Background And Structure Financial Exhibits SWOT Analysis See important disclosures at the end of this report 2

3 Investment Case And Valuation Quick snapshot about GDEX. GDEX group was established in 1996, but ran into difficulties triggered by the 1997 Asian financial crisis. In 2000, Mr Teong Teck Lean entered as a controlling shareholder and, together with Mr Leong Chee Tong, they embarked on the restructuring and turning around of the company. GDEX obtained ISO 9001:2000 certification in 2003, becoming the first local express delivery company to be awarded this standard. GDEX was then listed on the ACE Market of Bursa Malaysia in It was also the first local express delivery company to deploy conveyor systems for both parcel and document sorting in marked another significant milestone for GDEX when Singapore Post (SPOST SP, NR) emerged as a substantial shareholder. The company then started a new chapter in 2013 when it was successfully transferred to Bursa Malaysia s Main Market. Earnings growth on steady trend. GDEX has reported steady revenue and earnings growth over the past five years. It has a 5-year revenue CAGR of 18%, a 5- year EBITDA CAGR of 35.5% and a 5-year core net profit 5-year CAGR of 38.9%. Management believes, and we concur, that FY15 will be a consolidation year, whereby the company will invest and expand for more exponential growth in the subsequent two financial years. Hence, we forecast for its FY16 and FY17 earnings to grow organically by 26% and 28% respectively. We understand that GDEX is also eyeing other inorganic opportunities, ie M&As, to expedite this growth. Economies of scale. 10 years ago, GDEX operated on a very small scale with a fleet of only 90 trucks and vans. As at September, the company has grown the fleet to a total of 495 units, and this number is still growing. A decade ago, staff strength stood at 489. Now, it has almost 2,300 staff working for the company. Through years of prudent management, expansion and enhancement of staff productivity, GDEX has grown its scale while, at the same time, brought down its cost per unit. This is evidenced by its continuous growth in profit margins. Its EBITDA margins have also grown, to 29.9% in FY14 from 17.2% in FY10. Expansion opportunities. GDEX s expansion opportunities are huge. The company started its restructuring process in 2013 and switched its focus towards a broader market beyond Malaysia, ie ASEAN. Malaysia has a population of 30m, but in order to escalate its growth to a new high, GDEX needs to expand its footprint by tapping into the region s 600m inhabitants. The establishment of the ASEAN Economic Community (AEC), with the goal of integrating the region s economy by 2015, may be an opportunity for GDEX s next quantum leap, ie to grow with the integration of ASEAN s markets. The AEC envisages the following key characteristics: i) a single market and production base, ii) a highly competitive economic region, iii) a region of equitable economic development, and iv) a region fully integrated into the global economy. DCF-based TP of MYR2.42. We derive our MYR2.42 TP using 5-year DCF valuation, with a weighted average cost of capital (WACC) of 6.6% and terminal growth rate of 3.7%. With a 20.4% upside from its last closing price, we initiate coverage on GDEX with a BUY call. We believe its superior margin vs its closest express delivery peer Nationwide Express Courier (NAT MK, NR) as well as potential collaboration with Singapore Post and Alibaba (BABA US, NR) could possibly propel its earnings to a higher level. See important disclosures at the end of this report 3

4 Figure 1: GDEX DCF valuation table FY15 FY16 FY17 FY18 FY19 FY20 Net Operating cash flow Capex (10.0) (10.0) (10.0) (10.0) (10.0) (10.0) FCF WACC 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% PV of FCF WACC computation Risk free rate 3.8% Market risk premium 5.5% Beta 0.66 Cost of equity 7.4% After-tax cost of debt 4.9% Long term weightage for equity 70.0% Long term weightage for debt 30.0% WACC 6.6% Terminal growth rate 3.7% Terminal value 2,715.5 WACC 6.6% PV of terminal value 1,968.3 Enterprise value 2,229.0 Add: Net cash 32.0 Less minority interest - Equity Value 2,261.0 Shares outstanding Target Price (MYR) 2.42 Source: RHB Figure 2: Margins comparison with Nationwide Express GDEX FY09 FY10 FY11 FY12 FY13 FY14 Revenue PBT PBT margin 4.7% 10.1% 10.6% 10.5% 14.2% 15.3% Nationwide Express FY08 FY09 FY10 FY11 FY12 FY13 Revenue PBT PBT margin 8.1% 12.5% 7.2% 4.3% 5.5% -7.3% Source: RHB, Bloomberg See important disclosures at the end of this report 4

5 Assumptions And Forecasts FY15 is an investment year. We understand from management that FY15 will be a consolidation year and that GDEX is investing for greater future growth. Hence, we do not expect any strong growth in earnings in FY15. However, we think that FY16 and FY17 net profit growth will be interesting after the company s investments are done. Hence, we advise for investors to look into its longer-term outlook. Topline growth assumptions. We understand that GDEX is currently capable of handling 70,000-80,000 packages per day and that these numbers are growing as the company continues to grow its customer base. GDEX is aiming to achieve a target of 100,000 packages per day to boost its earnings base in the next two to three financial years. Conservatively, we imputed a volume growth of 10-15% YoY for FY Pricing for its packages vary according to size and type of material. We used an average price of MYR10 per package and assume that the forward pricing will be hovering around MYR10-11 due to industry s intense competition. Together with a conservative growth of MYR1m-1.5m per annum for its logistics arm, we derive a topline growth of 15% (FY16) and 14% (FY17). Cost structure. Labour costs are one of the main operating expenses for GDEX. Extensive manpower is required for packaging, tracking, invoicing, customer service/helpline and deliveries. Hence, productivity is the key to improving its profit margins. With that in mind, the company implemented an incentivised system to promote workforce productivity. As opposed to a unionised system, workers are compensated with the amount of work done, ie the more they work, the higher their earnings. GDEX currently has a workforce of about 2,300 and we assume that, with the volume growth expected, the company may need to add additional workers per annum. Also, we have imputed a higher diesel expenditure for its transportation costs, anticipating that the Malaysian Government will eventually remove fuel subsidies. EBITDA margin. We are confident that GDEX will be able to keep its EBITDA margins in the healthy 20-25% region via its prudent cost management, and high productivity and efficiencies. The company also has its own workshop that undertakes the maintenance work for its fleet. This helps to ensure that the fleet s performance is at an optimal level. This, in turn, will help GDEX to maintain its fleets fuel consumption at efficient levels. Minimal financial burden. GDEX has already achieved a net cash position as at FY14. We believe that the company will keep its solid balance sheet in net cash territory for the foreseeable future, given management s intention to not gear up. This serves as strong spport for GDEX, given that it can expand regionally and into new businesses without having to contend with any heavy financial burdens. Investment Risks Intense competition. Although GDEX has been growing steadily over the years and is aiming to expand further into the region, the main downside risk for the company would be the pricing power of its services. As highlighted earlier, the express delivery/logistics services segments are very fragmented in Malaysia and there are a lot of players are competing in the industry. A drop in the ASP of GDEX s products will affect the earnings directly. We believe that a 1% drop in selling price will mean a roughly 4% drop in its overall earnings. Largely affected by the global economy. A global economic slowdown could possibly slow down business transaction volumes and impact GDEX s growth. Nonetheless, the company underwent tough times in the global recession and was still able to report profit growth, showcasing its quality management. High growth rate assumptions. We are forecasting for a quantum leap growth for GDEX in FY Any slowdown in the economy, or delays in the formation of the AEC (as well as any execution risks), could possibly impact the company s earnings growth. See important disclosures at the end of this report 5

6 Financial Overview 5-year revenue growth CAGR of 18%. GDEX has been able to report such a strong revenue growth mainly due to heightened demand in the industry and its own fleet expansion. The company has a fleet size of 495 trucks and vans as at September from only 90 units 10 years ago. Staff strength has also increased to 2,300 as at 30 Jun from 489 a decade ago. 5-year net profit CAGR of 38.9%. Strong revenue growth coupled with prudent cost management has fuelled GDEX s growth. This allowed the company to report such a promising net profit growth level. Profit margins are also growing YoY. It is also worth highlighting that the growth in GDEX s earnings margins is impressive. This was mainly due to its economies of scale, ie a large fleet size, and also prudent cost management. Staff productivity and efficiency are the keys to the company s success story. Figure 3: GDEX s revenue growth trend MYRm Figure 4: GDEX s EBITDA growth trend MYRm FY10 FY11 FY12 FY13 FY14 - FY10 FY11 FY12 FY13 FY14 Source: Company data Source: Company data Figure 5: GDEX s core net profit growth trend MYRm FY10 FY11 FY12 FY13 FY14 Source: Company data Figure 6: GDEX s EBITDA and net profit margins Percentage 35.0% 29.9% 30.0% 25.0% 20.2% 20.0% 17.2% 15.6% 15.9% 14.6% 15.0% 11.0% 10.0% 7.6% 7.5% 7.5% 5.0% 0.0% FY10 FY11 FY12 FY13 FY14 Net profit EBITDA Source: Company data Solid balance sheet. GDEX possesses a solid balance sheet with a cash pile of MYR42m and total debt (including hire-purchase) of MYR25.3m as at FY14. Moving forward, we believe that management will maintain such a solid balance sheet to support its aggressive expansion plans. See important disclosures at the end of this report 6

7 Investment Merits It has what it needs to grow. We like GDEX for its: i) potential earnings growth, ii) solid balance sheet (it is in a net cash position) to support its expansion plans, and iii) healthy cash flows to meet working capital requirements. Minimal financial burden also gives the company more flexibility in growing its business. Earnings growth on a steady trend. GDEX has reported steady revenue and earnings growth over the past five years, booking 5-year growth CAGRs of 18% (revenue), 35.5% (EBITDA) and 38.9% (core net profit). The company believes, and we concur, that FY15 will be a consolidation year, whereby it will invest and expand for a more exponential growth in the subsequent two financial years. Thus, we forecast for FY16 and FY17 earnings to grow by 26% and 28% organically. We also learnt that GDEX is eyeing other inorganic opportunities, ie M&As, to expedite this growth. Strong balance sheet and healthy cash flows. Based on its 2014 annual audited account, GDEX has a cash pile of MYR42m and borrowings of MYR25.3m (including hire purchases of MYR8m). This translates into a net cash per share of MYR0.02. Furthermore, based on its audited accounts, GDEX has generated MYR40.7m of free cash flow in FY14, ie 177% of its PAT. With these solid financial foundations, the company still has more room to grow on the back of the expanding business environment. Cross border trading opportunities. Moving forward, GDEX s growth will pretty much rely on its expansion into the regional cross-border trading platform and also logistics services. We understand that the company is currently engaging with a few friendly parties in countries within ASEAN to explore the possibility of growing its cross-border trading segment. GDEX is also growing its logistics services business, particularly in the third-party logistics (3PL) segment, in which the company has been expanding its total warehouse space in Petaling Jaya, Selangor, to about 80,000 sq ft (from 60,000 sq ft) to accommodate such an expansion. Leveraging on the e-commerce. E-commerce is getting more and more common in this region and we believe this will help GDEX to grow its business exponentially. With broadband infrastructure being improved and the usage of smartphones becoming increasingly popular, online shopping has become an alternative way for consumers to spend. This is because: i) it is time efficient customers are only a click away for obtaining goods, ii) it is cost efficient this is because consumers do not need to travel to purchase the goods they want, and iii) goods sold online may come at a discount because customers are buying directly from the manufacturer or main distributor without the need to go through the middle man, ie shoplots and malls. Eyeing the region. Malaysia has a 30m population. ASEAN in total has 600m inhabitants, ie 20x the population of the country. GDEX s next focus is to grow its footprint in the region at a strong growth rate. The establishment of the AEC, with the goal of integrating the regional economy by 2015, may be an opportunity for the company s next quantum leap, ie growing in tandem with the region s integration. The AEC envisages the following key characteristics: i) a single market and production base, ii) a highly competitive economic region, iii) a region of equitable economic development, and iv) a region fully integrated into the global economy. We learnt from management that GDEX is eyeing Indonesia and Thailand as its first targets for regional expansion. Alibaba could be a wildcard. Alibaba owns a 10.4% stake in Singapore Post. With a 27% stake, the latter is GDEX s major shareholder. We believe this relationship gives the company the advantage of collaborating with the e-commerce giant. According to Alibaba chairman Jack Ma, cross-border e-commerce is more likely to experience fast and explosive growth in ASEAN than in the US or Europe. GDEX is in the sweet spot to ride on this bandwagon if the exponential growth really does materialise. See important disclosures at the end of this report 7

8 Industry Overview Competitive industry. The express delivery and logistics businesses are very fragmented and competitive in nature. Based on the data we gathered from Malaysian Communications and Multimedia Commission s (MCMC) latest data in 1H13, there are total of 93 courier licenses that have been issued in the market. GDEX is among the Top 15 companies that generates almost 99% of their courier service industry revenue domestically. Figure 7: Industry market share GD Express 5% City Link 6% Nationwide 4% Skynet 2% ABX 2% FedEx 24% TNT 7% Pos Laju 12% UPS 15% Source: Industry Performance Report 2012, MCMC DHL 23% The evolution in the industry. The industry is evolving from the traditional type, ie where a supplier engages a shipper to deliver goods to receivers. This involves a huge delivery volume. Today, the industry has evolved into a hub and spoke distribution channel, with a large number of consignments but smaller packages. This new delivery system has changed the supply chain in other industries as well. Strong potential in the business-to-customers (B2C) segment. E-commerce has been evolving strongly and has changed the way business is done globally. The trend became more apparent with a higher broadband penetration rate as well as common usage of smartphones in the market. There is strong potential in the B2C segment, with online transactions gaining popularity. This is mainly being driven by technological advancements, increasing purchasing power amongst the maturing Gen-Y demographic and more secure payment gateways. Based on the official data we gathered (the last update was in 2012), the broadband internet household penetration rate reached 66% in 2012 and 66.4% in Mar We believe these numbers are still growing. Figure 8: Broadband subscribers and household penetration ( ) % 66.0% 70.0% % 60.0% % % % % % 30.0% 20.0% 10.0% 0.0% Subscibers (m) - LHS Household penetration (%) - RHS Source: Industry Performance Report 2012, MCMC See important disclosures at the end of this report 8

9 Courier sector to reach MYR4bn by Based on data from the MCMC s 2011 Annual Report, the courier service industry generated a total revenue of MYR2bn in 2011 and is expected to rise to MYR4bn by 2020, driven by sustained gowth in economic activities. The volume handled is also expected to grow three-fold in tandem. Figure 9: Courier industry growth expectation Source: MCMC s 2011 Annual Report Eyeing the region. Malaysia has 30m inhabitants but ASEAN has population of 600m, ie 20x that of this country. The establishement of the AEC comes with the goal of integrating the economies of this region by This may be an opportunity for courier/logistics companies to experience their next quantum leap during this integration period. The AEC envisages the following key characteristics: i) a single market and production base, ii) a highly competitive economic region, iii) a region of equitable economic development, and iv) a region fully integrated into the global economy. See important disclosures at the end of this report 9

10 Company Background And Structure Figure 10: GDEX s corporate structure Quick snapshot about GDEX. GDEX group was established in 1996, but ran into difficulties triggered by the 1997 Asian financial crisis. In 2000, controlling shareholder Teong entered in the company and, together with former CEO Leong, embarked on the restructuring and turning around of the company. GDEX obtained ISO 9001:2000 certification in 2003, becoming the first local express delivery company to receive this global standard. The company was then listed on the ACE Market in GDEX was also the first local express delivery company to deploy conveyor systems for both parcel and document sorting in marked another significant milestone for the company when Singapore Post emerged as a substantial shareholder. In 2013, it reached another milestone when it successfully transferred to the Main Market. GD Express Carrier Bhd Listed on Main Market of Bursa Investment Holding 100% 100% 100% 100% 100% 100% 100% 100% GD Express Sdn Bhd Express Delivery GD Venture (M) Sdn Bhd Transportation Services GD Technosystem Sdn Bhd Renting of Computer Equipment GD Facilities and Assets Management Sdn Bhd Facilities & Assets Management GD Logistic (M) Sdn Bhd Logistics Operations GD Express (Singapore) Pte Ltd GDEX Regional Alliance Pte Ltd GD Valueguard Sdn Bhd Express Delivery Dormant Insurance Services 100% 100% 100% GD Distribution Services Sdn Bhd GD Secured Solutions Sdn Bhd GD Customised Solution Sdn Bhd Dormant Dormant Dormant Source: Company data Key management. GDEX is helmed by key shareholder Teong, who successfully turned around the company and made it into a thriving express delivery service provider. Under Teong, GDEX is also currently moving into a new segment, contract logistics services. We believe the strong management team is one of the key reasons behind the company s growth from a small firm to a billion-ringgit entity today. Figure 11: GDEX s management team Name Position Highlights Teong Teng Lean Managing director/group CEO Turned around GDEX. Responsible for business development, setting strategic direcion and overall management. Wong Eng Su Executive director/coo Joined GDEX in Held positions as head of sales and head of customer support group. Promoted to COO in Oversees overall business operations. Lim Chee Seong CFO More than 20 years of experience in accounting firms and varioius corporations. Joined GDEX in 2011 as general manager - finance. Recently assumed the position of acting CFO. Lisa Chan General manager - corporate group Joined GDEX in Held positions as manager of corporate development, deputy head of HQ Division and corporate support head. Promoted to general manager - corporate group in Kwok Nguk Mooi Quality assurance & risk management head Joined GDEX in Was manager of the billing department prior to assuming current position. Responsible for full compliance of the group's policies and procedures. Marmizahsalwa Ahmad Tarmizi Country operations head Joined GDEX in Was head of corporate planning prior to current appointment. In charge of planning and coordination of courier operations for Malaysia and Singapore. Thoo Sin Khew Sales head More than 20 years of experience in sales prior joining GDEX in Responsible for full compliance of sales policies, and achieving the company s sales and collections targets. Source: Company data See important disclosures at the end of this report 10

11 Established customer base. Over the years, GDEX practiced international standards when delivering its services. It has continuously designed and upgraded its facilities, which has resulted in faster turnaround and cost optimisation. The company has also strived to ensure the best in reliability and package security. As a result, GDEX has successfully built up a strong customer base across various segments, which include banks, electronic appliances companies, insurers and telcos. Apart from that, the company has also established strong alliances with foreign express carriers/postal firms, which has helped in the growing of its revenue base. Providing comprehensive logistics solutions. GDEX believes that most companies are now outsourcing their logistics services in order to focus on their core production/manufacturing businesses. Hence, it opines that the potential for 3PL is huge. With that, GDEX has been expanding its warehousing division to be able to expand its 3PL business. See important disclosures at the end of this report 11

12 Financial Exhibits Profit & Loss (MYRm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total turnover Cost of sales (27) (34) (39) (42) (46) Gross profit Gen & admin expenses (70) (81) (84) (95) (104) Other operating costs (16) (19) (22) (25) (28) Operating profit Operating EBITDA Depreciation of fixed assets (5) (6) (7) (8) (9) Operating EBIT Interest income Interest expense (1) (1) (1) (1) (1) Exceptional income - net (1) Pre-tax profit Taxation (6) (1) (9) (12) (15) Profit after tax & minorities Reported net profit Recurring net profit Source: Company data, RHB Cash flow (MYRm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Operating profit Depreciation & amortisation Change in working capital (5) (4) (5) (4) (6) Other operating cash flow Operating cash flow Interest received Interest paid (1) (1) (1) (1) (1) Tax paid (4) (2) (9) (12) (15) Cash flow from operations Capex (5) (4) (10) (10) (10) Other investing cash flow Cash flow from investing activities (4) (3) (9) (9) (9) Dividends paid (3) (0) (10) (12) (16) Proceeds from issue of shares Increase in debt (5) (7) Other financing cash flow (2) 2 (4) (4) (4) Cash flow from financing activities (8) 4 (13) (15) (19) Cash at beginning of period Total cash generated Implied cash at end of period Source: Company data, RHB See important disclosures at the end of this report 12

13 Financial Exhibits Balance Sheet (MYRm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total cash and equivalents Inventories Accounts receivable Other current assets Total current assets Tangible fixed assets Total other assets Total non-current assets Total assets Short-term debt Accounts payable Other current liabilities Total current liabilities Total long-term debt Other liabilities Total non-current liabilities Total liabilities Share capital Retained earnings reserve Other reserves Shareholders' equity Total equity Total liabilities & equity Source: Company data, RHB Key Ratios (MYR) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Revenue growth (%) Operating profit growth (%) Net profit growth (%) EPS growth (%) Bv per share growth (%) Operating margin (%) Net profit margin (%) Return on average assets (%) Return on average equity (%) Net debt to equity (%) 12.7 (17.5) (20.1) (25.7) (32.0) DPS Recurrent cash flow per share Source: Company data, RHB See important disclosures at the end of this report 13

14 SWOT Analysis Good management evidenced by the steady growth in earnings over the past 10 years High staff productivity translates into high profit margins Drastic increase in operating expenses (mainly fuel costs) could dampen its earnings Booming of e- commerce in the region is expected to increase business volume Unattractive valuation in terms of P/E ratio Operating in a highly competitive and fragmented industry P/E (x) vs EPS growth P/BV (x) vs ROAE % 35 35% % 62% 53% 44% % 25% 20% % 27% 18% 9% % 10% 5% 0 0% 0 0% Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Source: Company data, RHB Source: Company data, RHB Company Profile GD Express Courier (GDEX) is the leading express delivery company in Malaysia and is currently embarking into the third-party logistics (3PL) segment. See important disclosures at the end of this report 14

15 Recommendation Chart 2.50 Price Close Nov-09 Feb-11 May-12 Aug-13 Source: RHB, Bloomberg See important disclosures at the end of this report 15

16 RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. 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