INVESTMENT HIGHLIGHTS

• 6MFY17 earnings within expectations

• Anticipating a boost in the e-commerce segment

• Putting its cash pile to work on capex and acquisitions

• Maintain BUY with unchanged TP of RM2.06

6MFY17 earnings within expectations. For 2QFY17, GDEX posted revenue of RM66m and core net profit of RM9.2m which was up +19%yoy and +18%yoy respectively. On a cumulative basis, GDEX recorded 1HFY17 core net profit of RM17.3m (+23%yoy) which fell within our and consensus forecasts. Despite coming in at 43% of our full year FY17 forecast of RM41m, we deem the results to be within expectations as the second half is seasonally stronger.

Anticipating a boost in the e-commerce segment. EBIT margins slipped slightly by -0.4ppt from 17.3% to 16.9% in the second quarter as the company is in the early cycle of a ramp up in operational assets. During 1HFY16, GDEX increased its vehicle fleet size by 17% within 6 months from 654 as at end FY16 to 768 as of 1HFY17 while staff headcount rose +17. We believe that the increase in operational assets is in anticipation of a ramp up in orders in the second half from the ecommerce segment. Margins should improve when volume picks up.

Putting its cash pile to work. In 1HFY17, GDEX has spent RM6m in CAPEX which already exceeds its past 4 year (FY13-FY16) full year average of RM5m. The company has budgeted RM30m of CAPEX spending in FY17 on improvements to its current sorting hub in PJ as well as possibly a new regional hub. Meanwhile, GDEX has also spent RM16m on acquiring a software company enhance operational efficiencies & develop various customized solutions for its clients and invested in an Indonesian logistics company to widen its network in the country.

Maintain BUY with unchanged TP of RM2.06. We value the company using the discounted cash flow method (DCF) which assumes WACC of 8.5% and terminal growth rate of 3%. GDEX has consistently achieved PBT margins of 15-16% which are on average 10ppts higher compared to its peers. While our TP implies a forward price-to-earnings (PER) of 53x FY18 core earnings, we believe it is justified as GDEX is a beneficiary of the high growth e-commerce sector.

Source: MIDF Research - 23 Feb 2017