This article first appeared in The Edge Financial Daily, on December 14, 2015.

KUALA LUMPUR: GD Express Carrier Bhd (GDex), riding on the e-commerce wave, will pursue inorganic growth via acquisitions and seek partnerships with other courier companies to expand into new markets in the Asean region, as it aims to achieve 24% to 25% net profit growth this financial year ending June 30, 2016 (FY16).

GDex head of strategic planning and investment Jerry Lee said the home-grown courier and logistics firm had been looking into a number of proposals from bankers, but nothing firm had been agreed.

“Management has not set a timeline for a M&A (merger and acquisition) deal. But if the right candidate who can add value to the company comes along, the group may seal the deal soon,” he told The Edge Financial Daily in an interview.

Lee said the courier industry as a whole had been in consolidation mode amid the explosive growth of e-commerce. GDex is no exception, and is aggressively pursuing growth through M&As.

Nevertheless, the group is not desperate to participate in any M&As. “We don’t buy [a company] for the size, but for long-term sustainability,” said Lee, pointing to GDex’s strong financial position and balance sheet.

As of Sept 30, 2015, GDex’s cash and cash equivalents stood at RM33.83 million, with zero debt.

Lee said the group is also in talks with several local and foreign courier companies for potential collaboration in the region.

“We believe that with more partners, we can form a stronger alliance and strengthen our position to penetrate into the Asean courier market,” he added.

GDex, whose major shareholders include Singapore Post Ltd (SingPost) with a 24.2% stake, in January proposed to undertake a private placement of up to 10% of its issued share capital to raise up to RM227.12 million.

In July, the group sought an extension of time from Bursa Securities to complete the implementation of the private placement to Feb 5 next year.

“We are still working on the private placement to see if there is any strategic partner keen on investing in GDex.

“We are in talks with a few local and foreign parties [to subscribe to the placement shares], and [are] awaiting their conclusions. They are all friendly parties, but they are still undertaking their respective study and have not come back to us yet,” Lee said.

Lee, however, did not rule out the possibility of GDex letting its private placement plan lapse or opting for another extension.

The proceeds from the private placement will be used to fund the group’s expansion plans, including setting up more courier service points in the region.

After opening its first trade representative office in Jakarta, Indonesia, in December last year, GDex is looking to expand to Thailand and the Philippines.

“Asean’s courier business is still in its infancy as it is not dominated by any single player. We hope GDex will be one of the leaders by creating service points in every Asean country,” said Lee, citing the Asean market as the group’s next decade of growth.

GDex also sees itself benefiting from greater deliveries and opportunities following the strengthened position in regional e-commerce logistics between SingPost and Chinese e-commerce giant Alibaba Group Holding Ltd, which currently holds a 10.19% stake in SingPost and is looking to increase it to 14.51%.

On the home front, GDex is looking to increase its courier market share to 10% from 6% presently.

“The domestic industry is very competitive. We hope through capacity expansion [by buying more trucks to expand our fleet size], we can absorb [a] greater volume when the market grows,” said Lee.

Meanwhile, GDex is allocating about RM16 million to RM20 million as capital expenditure (capex) to promote the group’s operational infrastructure, fleet expansion and information technology investment for FY16. In FY15, it allocated a capex of RM18.3 million.

GDex posted a 26.2% increase in net profit to RM6.29 million for the first financial quarter ended Sept 30, 2015 (1QFY16) from RM4.98 million a year ago, underpinned by a 17.7% growth in revenue to RM51.47 million from RM43.74 million. The higher 1QFY16 performance was driven by robust growth in courier volume amid increasing demand in the e-commerce business.

Lee said while its logistics segment had slowed down, he does not see this impacting the group’s growth as more than 90% of its revenue is contributed by its courier services.

“As e-commerce grows rapidly, we expect our earnings to grow at a higher percentage this financial year than what we achieved in the last few [financial] years. We hope we can hit [a net profit growth of] about 24% to 25% [in FY16],” he added.

Lee attributed the unprecedented growth in Malaysia’s e-commerce business to rising costs, following the implementation of the goods and services tax.

Year to date, GDex’s share price has fallen 0.95%, outperforming the FBM KLCI’s 6.88% decline. The stock closed one sen or 0.65% higher at RM1.56 last Friday, with a market capitalisation of RM1.95 billion.

In a report dated Nov 20, 2015, RHB Research Institute said GDex’s “explosive earnings trajectory” remains intact, driven by the ever-growing contribution from its e-commerce clientele.

It is maintaining a “buy” call on GDex (valuation: 0.7; fundamental: 2.55) at RM1.56, with a slightly higher target price (TP) of RM1.73 from RM1.70. Its TP implies a forward price-earnings ratio of 58 times for FY16, which is slightly below its historical average of 63 times.

“We believe that its valuation is justified given its explosive earnings growth trajectory, high earnings before interest, taxes, depreciation and amortisation margins and return on equity, and net cash position for potential future expansion,” said RHB Research.

The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.