GDEX - A Whopping 77.5x Projected Earnings, Is It Justify !!

The purchase of a 10.35% stake in Singapore Post Ltd (SingPost), GDex’s second-largest shareholder, by Chinese e-commerce giant Alibaba Group Holdings Ltd makes GDex possibly the only Malaysian company to count Alibaba as a shareholder, albeit indirectly.

The collaboration between Alibaba and SingPost could have spillover benefits for GDex in terms of higher volumes of parcel deliveries.

It is at a tipping point as retailers in the region increasingly look to sell their wares online. Trust in electronic payment has also grown substantially, while logistics players have built the infrastructure needed to make express delivery a reliable option.

For GDex, which is ramping up capacity in anticipation of higher volumes, the bulk of its growth will be driven by e-commerce.

Going forward, it may grow at a speed that not seen before. Year 2013/2014 is the inflection point for Internet penetration and e-commerce in Asean. The region has reached its ‘mobile moment’, with the majority of traffic coming from mobile devices”.

E-commerce will also require more sophisticated supply chain solutions and warehousing capacity in order to ensure next-day delivery, as well as demand spikes from “flash sales”. This is driving logistics outsourcing to third-party logistics providers, as is the need for additional warehousing capacity, especially out of key metropolitan areas where there has been a lack of investment”.

At rm1.76 GDex’s valuations were rich at 61.5 times and 51.2 times its estimated earnings per share of 2.9 sen and 3.4 sen for financial year 2015 (FY15) and FY16. At RM2.17, the stock was trading at a whopping 77.5 times projected earnings, compared to 18.6 times for Pos Malaysia Bhd.

Nevertheless the valuations were conservative and excluded potential upside from regional expansion and strategic alliances.

With a bigger profile now (June 2014), GDex is casting its net wider in the Asean region. It will set up a representative office in Indonesia by year-end 2014, its first foray outside of Malaysia and Singapore. In the longer term, GDex hopes to establish a presence in every Asean city.

Growth will be exponential with the free flow in intra-Asean trade.

GDex will also grow its higher-margin logistics arm, which includes services such as warehousing and freight forwarding. Its customers are increasingly outsourcing their logistics needs, as they do not see it as a core part of their operations.

SingPost has a 26% stake in GDex. The Temasek-owned postal services group emerged as a substantial shareholder of GDex in March 2011. Teong remains the firm’s single-largest shareholder with a 42.1% holding.

Their collaboration, however, has not extended beyond GDex providing last-mile delivery services for SingPost in Malaysia.