Thursday 28 Mar 2024
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GD EXPRESS CARRIER BHD (GDex) (fundamental: 3.0; valuation: 0.5) is touted as a proxy for the growing online retail industry. Analysts say growth in the domestic online retail market is still at an early stage, so the potential could be huge.

Some analysts expect further upside for GDex, even though its share price has risen by more than 12% year to date. In fact, it has been on an upward trend since last year, climbing from RM1.27 in mid-October to RM1.82 last Thursday.

Its warrant, GDex-WA, on the other hand,  had stopped moving in tandem with the mother share since end-2014.

The company has two warrants, GDex-WA, issued in 2011, and GDex-WB, issued in February this year. Both have a one-to-one conversion ratio.

GDex-WA is currently trading at a discount to its mother share. Last November, the derivative was traded at a 36% premium, but it is now trading at a 4.95% discount, based on last Thursday’s closing.

GDex-WA has a strike price of 15 sen and is set to expire on Feb 7 next year. GDex-WB has a strike price of RM1.53 and expires in February 2020.

Delivery of household products account for 40% of GDex’s business volume, with 10% coming from business-to-consumer customers such as Zalora, Lazada, Astro Home TV and Go Shop.

“As online retail continues to grow, we believe GDex is poised to be on a growing earnings trajectory ahead,” RHB Research said in a March 24 note.

The research house has raised its earnings expectations for GDex in view of its aggressive expansion plans.

“We expect GDex’s outlook to be rosy ahead with very minimal capex outlay relative to its strong operating cash flow churn. As it could be embarking on an exponential growth trajectory, dividends could be minimal for now but as the courier industry gdex-wa_cap52_1062matures eventually without needing any major capex, GDex’s payout ratio could potentially increase from 35% currently,” it says.

It has a “buy” call on the stock with a target price of RM2.05, indicating an 18.5% upside to GDex’s share price of RM1.73 last Tuesday.

GDex shares are trading at a 12-month trailing price-earnings ratio (PER) of 93 times and average trailing PER of 61 times since 2005. However, RHB Research describes the valuation as “reasonably high” given GDex’s forecast earnings, strong cash flow and superior return on equity of 29% (according to The Edge Markets Research).

Hong Leong Investment Bank Research (HLIB) is more conservative with a RM1.80 fair value, indicating a 4% upside. The stock is not rated.

The research house is projecting GDex’s earnings to grow in the range of 23.6% to 38.6% for the financial years 2015 to 2017, ending June 30.

This article first appeared in Capital, The Edge Malaysia Weekly, on April 13 - 19, 2015.

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