Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Vol m Results Review, Buy (Maintained) Transport - Logistics Target Price: MYR2.42 Market Cap: USD534m Price: MYR2.12 Good Start To The Year Macro Risks Growth Value 2.40 2.20 2.00 1.80 1.60 1.40 1.20 1.00 0.80 8 7 6 5 4 3 2 1 Source: Bloomberg Avg Turnover (MYR/USD) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 240 220 200 180 160 140 120 100 80 0.69m/0.21m Cons. Upside (%) 14.2 Upside (%) 14.2 52-wk Price low/high (MYR) 0.93-2.22 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 84.3 17.8 0.0 19.8 114.1 Relative 87.0 16.7 2.3 22.5 112.2 Shariah compliant Jerry Lee +603 9207 7622 jerry.lee@rhbgroup.com 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 are expiring 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 and maintain 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. Forecasts and Valuations Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total turnover (MYRm) 135 159 182 208 238 Reported net profit (MYRm) 13.6 23.4 27.6 34.8 44.6 Recurring net profit (MYRm) 14.5 23.2 27.6 34.8 44.6 Recurring net profit growth (%) 65.7 59.8 19.2 25.9 28.2 Recurring EPS (MYR) 0.02 0.02 0.03 0.04 0.05 DPS (MYR) 0.02 0.03 0.04 0.05 0.06 Recurring P/E (x) 136 85 72 57 44 P/B (x) 30.4 20.3 17.2 14.3 11.8 P/CF (x) 116 74 65 50 39 Dividend Yield (%) 0.9 1.5 1.8 2.2 2.9 EV/EBITDA (x) 73.6 62.8 44.1 35.3 27.9 Return on average equity (%) 23.2 28.8 26.0 27.5 29.3 Net debt to equity (%) 12.7 net cash net cash net cash net cash Our vs consensus EPS (adjusted) (%) 0.0 0.0 0.0 See important disclosures at the end of this report Powered by EFA TM Platform 1
Figure 1: 1QFY15 results table FYE Jun (MYRm) 1QFY14 4QFY14 1QFY15 QoQ (%) YoY (%) Comments Revenue 37.1 41.6 43.7 5.2 17.9 Stronger sales from both courier and logistics services. EBITDA 7.1 9.2 8.0 (13.3) 12.2 EBITDA Margin (%) 19.2 22.1 18.2 Incurred high expenditure due to expansion. Depreciation (1.6) (1.9) (2.0) 7.1 22.5 EBIT 5.5 7.3 6.0 (18.5) 9.1 EBIT Margin (%) 14.7 17.6 13.6 Interest expense (0.4) (0.3) (0.3) 0.9 (2.8) Associates 0.0 0.0 0.0 nm nm EI/Others 0.0 0.0 0.0 nm nm Pretax profit 5.1 7.0 5.6 (19.4) 9.9 Pretax Margin (%) 13.8 16.8 12.9 Tax (1.4) (1.1) (0.6) (42.0) (55.4) Effective tax rate (%) (28.0) (15.8) (11.4) Minority Interest 0.0 0.0 0.0 nm nm Net Profit 3.7 5.9 5.0 (15.2) 35.3 We deem in line and anticipate stronger quarters ahead. Core Profit 3.7 5.9 5.0 (15.2) 35.3 Net Margin (%) 9.9 14.1 11.4 Source: Company data Figure 2: Historical quarterly information FYE Jun (MYRm) 2QFY13 3QFY13 4QFY13 1QFY14 2QFY14 3QFY14 4QFY14 1QFY15 Revenue 34.2 33.3 35.7 37.1 40.3 39.7 41.6 43.7 EBITDA 6.7 5.5 4.7 7.1 8.7 7.8 9.2 8.0 EBITDA Margin (%) 19.5 16.4 13.3 19.2 21.6 19.6 22.1 18.2 Depreciation (1.5) (1.6) (0.3) (1.6) (1.7) (1.8) (1.9) (2.0) EBIT 5.2 3.9 4.4 5.5 7.0 6.0 7.3 6.0 EBIT Margin (%) 15.2 11.7 12.4 14.7 17.4 15.0 17.6 13.6 Interest expense (0.3) (0.4) (0.3) (0.4) (0.5) (0.4) (0.3) (0.3) Associates 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 EI/Others 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Pretax profit 4.9 3.5 4.1 5.1 6.6 5.6 7.0 5.6 Pretax Margin (%) 14.3 10.6 11.4 13.8 16.3 14.1 16.8 12.9 Tax (1.4) (1.0) (1.9) (1.4) 2.2 (0.5) (1.1) (0.6) Effective tax rate (%) (29.2) (26.9) (46.2) (28.0) 32.9 (9.1) (15.8) (11.4) Minority Interest 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Net Profit 3.5 2.6 4.1 3.7 8.7 5.1 5.9 5.0 Core Profit 3.5 2.6 4.1 3.7 8.7 5.1 5.9 5.0 Net Margin (%) 10.1 7.8 11.4 9.9 21.6 12.9 14.1 11.4 Source: Company data See important disclosures at the end of this report 2
Figure 3: GDEX s DCF valuation table FY15 FY16 FY17 FY18 FY19 FY20 Net Operating cash flow 30.7 39.5 48.7 65.4 90.2 107.4 Capex (10.0) (10.0) (10.0) (10.0) (10.0) (10.0) FCF 20.7 29.5 38.7 55.4 80.2 97.4 WACC 6.6% 6.6% 6.6% 6.6% 6.6% 6.6% PV of FCF 20.7 27.7 34.1 45.7 62.0 70.6 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 (m) 933 Target Price (MYR) 2.42 Ex-Bonus issue Enlarged share base (m) 1,244 Theoretical Target Price (MYR) 1.82 Source: RHB See important disclosures at the end of this report 3
Financial Exhibits Profit & Loss (MYRm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total turnover 135 159 182 208 238 Cost of sales (27) (34) (39) (42) (46) Gross profit 108 125 143 167 192 Gen & admin expenses (70) (81) (84) (95) (104) Other operating costs (16) (19) (22) (25) (28) Operating profit 22 25 37 47 60 Operating EBITDA 27 31 44 55 69 Depreciation of fixed assets (5) (6) (7) (8) (9) Operating EBIT 22 25 37 47 60 Interest income 0 1 1 1 1 Interest expense (1) (1) (1) (1) (1) Exceptional income - net (1) 0 - - - Pre-tax profit 19 24 37 46 59 Taxation (6) (1) (9) (12) (15) Profit after tax & minorities 14 23 28 35 45 Reported net profit 14 23 28 35 45 Recurring net profit 15 23 28 35 45 Cash flow (MYRm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Operating profit 22 25 37 47 60 Depreciation & amortisation 5 6 7 8 9 Change in working capital (5) (4) (5) (4) (6) Other operating cash flow 1 2 0 1 2 Operating cash flow 23 29 40 52 66 Interest received 0 1 1 1 1 Interest paid (1) (1) (1) (1) (1) Tax paid (4) (2) (9) (12) (15) Cash flow from operations 17 27 30 40 50 Capex (5) (4) (10) (10) (10) Other investing cash flow 1 1 1 1 1 Cash flow from investing activities (4) (3) (9) (9) (9) Dividends paid (3) (0) (10) (12) (16) Proceeds from issue of shares 2 9 - - - Increase in debt (5) (7) 1 1 1 Other financing cash flow (2) 2 (4) (4) (4) Cash flow from financing activities (8) 4 (13) (15) (19) Cash at beginning of period 12 18 42 48 61 Total cash generated 4 27 8 16 22 Implied cash at end of period 17 45 51 64 83 See important disclosures at the end of this report 4
Financial Exhibits Balance Sheet (MYRm) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Total cash and equivalents 18 42 48 61 80 Inventories 1 1 1 1 1 Accounts receivable 30 32 41 46 52 Other current assets 4 6 7 8 8 Total current assets 53 82 97 116 141 Tangible fixed assets 32 36 43 50 55 Total other assets 22 22 21 21 20 Total non-current assets 54 58 64 70 76 Total assets 107 140 162 186 217 Short-term debt 7 4 4 4 4 Accounts payable 3 4 5 5 5 Other current liabilities 10 10 14 15 15 Total current liabilities 21 19 23 24 25 Total long-term debt 19 21 21 21 22 Other liabilities 2 3 3 3 3 Total non-current liabilities 21 24 24 24 25 Total liabilities 42 42 47 48 50 Share capital 26 42 42 42 42 Retained earnings reserve 36 55 73 96 125 Other reserves 3 - - - - Shareholders' equity 65 97 115 138 167 Total equity 65 97 115 138 167 Total liabilities & equity 107 140 162 186 217 Key Ratios (MYR) Jun-13 Jun-14 Jun-15F Jun-16F Jun-17F Revenue growth (%) 16.2 17.4 14.6 14.6 14.0 Operating profit growth (%) 57.3 14.7 50.2 26.2 27.9 Net profit growth (%) 55.6 71.8 18.2 25.9 28.2 EPS growth (%) 55.6 71.8 18.2 25.9 28.2 Bv per share growth (%) 24.6 49.6 18.4 19.6 21.0 Operating margin (%) 16.0 15.6 20.5 22.5 25.3 Net profit margin (%) 10.1 14.7 15.2 16.7 18.8 Return on average assets (%) 13.4 18.9 18.3 20.0 22.1 Return on average equity (%) 23.2 28.8 26.0 27.5 29.3 Net debt to equity (%) 12.7 (17.5) (20.1) (25.7) (32.0) DPS 0.02 0.03 0.04 0.05 0.06 Recurrent cash flow per share 0.02 0.03 0.03 0.04 0.05 See important disclosures at the end of this report 5
Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 SWOT Analysis Good management as evidenced by the steady growth in earnings over the past 10 years High staff productivity translates into high profit margins A surge in operating expenses (mainly fuel costs) could dampen its earnings The e- commerce boom in the region could help drive its 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 180 80% 35 35% 160 140 120 100 71% 62% 53% 44% 30 25 20 30% 25% 20% 80 60 40 20 36% 27% 18% 9% 15 10 5 15% 10% 5% 0 0% 0 0% P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile GD Express Courier (GDEX) is the leading express delivery company in Malaysia and is currently embarking on the third-party logistics (3PL) business. See important disclosures at the end of this report 6
na Recommendation Chart 2.50 Recommendations & Target Price Price Close 2.00 1.50 1.00 0.50 0.00 Nov-09 Feb-11 May-12 Aug-13 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB, Bloomberg Date Recommendation Target Price Price 2014-11-12 Buy 2.42 2.09 Source : RHB, Bloomberg See important disclosures at the end of this report 7
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