GDEX delivered a positive set of results, with 1H17 earnings growing 23% YoY, underpinned by healthy parcel courier demand growth especially in the e- commerce front. We continue to favour GDEX for its ability to leverage on the growing e-commerce trend and healthy balance sheet, which enables the pursuit for value-accretive investments in ASEAN. Restructuring works in its sorting hub is also expected to further lift future earnings. Maintain OUTPERFORM call and TP of RM1.97.

Within expectations. Coming in at 43%/42% of our/consensus full- year estimate, we deem the 1H17 results with RM17.3m CNP to be broadly within expectations. 1H had seasonally been the weaker half of the year (e.g. 1H15 and 1H16 made up 43% and 41% of their respective full-year earnings) especially 1Q, while for 2H, 4Q had seasonally been the strongest. DPS of 1.0 sen announced back in January was also in line with expectations.

Stronger results overall. 2Q17 CNP of RM9.1m came in 18% higher YoY, in tandem with a 19% YoY revenue growth on the backdrop of a higher demand for courier services for e-commerce. Stronger QoQ of 14%/13% growth in top/bottom-line was also for similar reasons coupled with the seasonally weaker 1Q17, while marginally offset by higher opex catered for business expansions for its e-commerce business.

Cumulatively, 1H17?s earnings growth of 23% from RM14.1m in 1H16 was also due to parcel volume growth, but was simultaneously dragged down by its logistics segment, which recorded a segmental loss of RM0.76m in 1H17, from segmental profit of RM1.5m in 1H16. The segment has now recorded losses for the third quarter running.

Continued positive outlook. We continue to favour GDEX as it is poised to capitalise on the growing e-commerce trend in the country, while its B2B parcel deliveries expected to remain resilient. The company has consistently registered undisrupted double-digit growth for the past six years running. And with the restructuring of its sorting hub to accommodate larger capacity, we do not expect this earnings growth trend to be broken. We also like the company for its healthy balance sheet, which enables it in its continued pursuit for value- accretive investments in ASEAN. We retained our FY17-18E earnings, pending a management briefing later today.

Maintain OUTPERFORM. We maintain our DCF-valuations and TP of RM1.97, based on the assumption of: (i) WACC of 7.8%, and (ii) terminal growth of 5%. Our TP implies a (i) forward PER of 77x, which is roughly +0.5SD above its 5-year mean of 64x, (ii) forward PBV of 7.5x, close to -0.5SD below its 5-year average of 11.6x, especially after the private placement to YAMATO earlier last year, with an entry price of RM1.74/share (9% premium from last closing price), raising a net-cash of RM209m and bringing the BV up by 1.7x for FY16.

Risks to our call include (i) lower-than-assumed courier demand for its express delivery services, and (ii) de-rating in price multiples.

Source: Kenanga Research - 23 Feb 2017