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GD Express Carrier Bhd
(Nov 12, RM2.09)
Initiate coverage with “buy” with target price (TP) of RM2.42: We initiate coverage on GD Express Carrier Bhd (GDEX) with a “buy” call and discounted cash flow (DCF)-derived RM2.42 TP (a 20.4% upside), valuing the stock at an implied 81 times financial year 2015 (FY15) price-earnings (PE) ratio.

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.

The Asean Economic Community (AEC) is expected to be a key catalyst to drive GDEX’s earnings higher.

Financial year 2015 (FY15) is an investment year for GDEX and we believe the company is poised for stronger growth in FY16 and FY17. It posted a five-year revenue and net profit compound annual growth rates (CAGR) of 18% and 39% respectively, with steady improvement in its operating margins.

Quality deliveries, prudent cost management and high staff productivity are the competitive components for the company’s success in growing its business. Also, growth will follow as it rides on the e-commerce bandwagon.

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 30 million population, but Asean’s 600 million people as well, giving it huge growth potential.

However, any economic slowdown may result in lower business volumes, which would affect GDEX’s profitability.

We derived our RM2.42 TP using a 5-year DCF on its free cash flow to firm with a weighted average cost of capital of 4.5% and a 1% 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 PE valuations, but we believe its high growth potential could justify the high valuations. — RHB Research Institute Sdn Bhd, Nov 12

GD-Express_theedgemarkets

This article first appeared in The Edge Financial Daily, on November 13, 2014.

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