This article first appeared in The Edge Financial Daily on April 2, 2019

GD Express Carrier Bhd
(April 1, 35 sen)
Maintain neutral with a revised target price (TP) of 34 sen (previously 33 sen). GD Express Carrier Bhd’s (GDEX) inked a strategic partnership with RedCargo Logistics Sdn Bhd (RedCargo), the cargo and logistics arm of AirAsia Group Bhd (AAGB) which begins on April 1, 2019. GDEX is not the first to form a partnership with RedCargo as Tasco Bhd was appointed the first direct logistics partner of RedCargo in January this year.

The partnership enables GDEX to provide its customers with greater access by utilising AAGB’s network whereby goods can be transported efficiently on more than 5,000 weekly flights across the Asia-Pacific. GDEX in return would provide RedCargo with its last-mile services.

With two logistics companies in partnership with RedCargo, we view that there is ample network capacity available to be booked by logistics partners. This bodes well for the growth in international parcel traffic which has been growing for the past three years. Apart from that, we do not discount the possibility of special rates being offered by AAGB to GDEX to attract more volume being channelled to the belly space of AAGB’s aircrafts. This in turn would incentivise GDEX to expand its services.

RedCargo was incorporated in March last year as the exclusive provider of cargo capacity for AAGB. Therefore, we opine that the impact on GDEX earnings to be minimal at this juncture as it has yet to undergo its gestation period. As such we maintain our earnings estimates for financial years 2019 (FY19) and 2020 (FY20).

The change in GDEX’s TP follows the higher revised terminal growth rate of 3% in our two-stage discounted cash flow model which reflects the growth in the Southeast Asian e-commerce industry which is expected to be worth US$102 billion by 2025.

GDEX’s healthy balance sheet has supported the group’s various expansion plans. This includes acquisition of a 44.5% stake in SAP Express, an Indonesian courier company and ongoing effort to secure a partnership in Vietnam by the end of calendar year 2019  (CY2019) facilitated by Webbytes through its cloud-based point-of-sale platform. Nonetheless, we view that the earnings accretion from these ventures is yet to be meaningful given it is still in a gestation period. Meanwhile, valuation remains stretched at this juncture as compared to the average industry price-earnings ratio (PER) of about 15 times. All factors considered, we are maintaining our “neutral” stance at this juncture. In the long term, rerating catalysts for GDEX would be: (i) slowdown in growth for last-mile delivery start-up companies and (ii) stronger consumer-to-consumer business demand. — MIDF Research, April 1