PETALING JAYA: The booming e-commerce industry in the region is set to drive GD Express Carrier Bhd ’s (GDEx) growth in the coming years.
According to Kenanga Research, the strategically positioned package delivery services company can ride on the rising trend as the e-commerce industry will undergo a period of robust growth in the coming few years.
“Riding the growing domestic trend of e-commerce, we project its business-to-customer (B2C) delivery to grow 50%-70% in the next three years, surpassing business-to-business (B2B) delivery revenue by financial year (FY) ending June 30, 2019,” Kenanga Research said.
“As GDEx only started e-commerce business-to-customer (B2C) delivery less than five years ago, we believe that the base is still low, with high growth potential leveraging on the emerging e-commerce market in the country,” the brokerage wrote in a report.
B2C delivery at present made up 26% of GDEx’s express delivery revenue.
The company saw 70% to as high as 500% growth in B2C delivery in the past three years, with a CAGR (compounded annual growth rate) of 246%.
As for GDEx’s B2B delivery business, Kenanga Research said the sector was expected to remain resilient, with a projected growth of 3% to 5%, thanks to the company’s strong relationships with its client base.
The bullish outlook on GDEx’s earnings growth prompted Kenanga Research to initiate coverage on the company, with an “outperform” rating and a target price of RM1.97.
“We believe GDEx has a solid earnings growth story with three-year CAGR of 22.3%, riding on the booming e-commerce scene, with utilisation overload the only obstacle to overcome before achieving exponential growth,” Kenanga Research said.
“We also believe regional expansions through acquisitions are very likely and will serve as another major re-rating catalyst,” it added.
GDEx’s shares closed one sen higher at RM1.71 yesterday.
Kenanga Research’s target price for GDEx implies a forward price-earnings ratio (PER) of 77 times on estimated earnings for FY2017.
In justifying the valuation for GDEx, the brokerage pointed out that the counter had always traded at similar forward PER levels historically, reaching as high as 100 times in June 2014.
In addition, GDEx’s also had superior margins over logistic peers at 15.7% to 5.7%, as well as superior return on asset, return on equity and return on invested capital at 11%, 13% and 9.3% to domestic logistic peers’ average of 4.2%, 7.7% and 5.6% respectively, arising from its asset-light and operationally efficient business model.
“We believe FY16 express delivery revenue growth could be higher, if not for capacity constraints faced in its sorting hub. Management recently restructured its sorting hub workflow, which effectively increased its sorting capacity by 28%, from an average of 78,000 to 100,000 pieces per day, which should be fully reflected in FY17,” Kenanga Research said.
“With the express delivery revenue projection growth of 15%-19%, we reckon this temporary fix will only last one to two years before reaching full capacity again. Management is currently on the hunt for an additional sorting hub to run concurrently to remove the existing growth constraint,” it added.
According to Kenanga Research, GDEx would not need to raise fresh fund to finance any capital expenditure for existing business as its current strong cashflows generating ability is more than sufficient. With the entire war chest solely for inorganic growth, the brokerage said GDEx would end up with multiple acquisitions, with Indonesia being the most likely target country.
GDEx saw its net profit increase 28% to RM8.1mil for the first quarter of Sept 30, 2016, from RM6.3mil in the corresponding period last year.
During the quarter in review, the group’s revenue rose 13% to RM58.02mil from RM51.47mil, and its earnings per share increased to 0.59 sen from 0.51 sen previously.