INVESTMENT HIGHLIGHTS

• 9MFY17 earnings within expectations

• Higher operating and depreciation expenses due to expansion

• 3-for-1 bonus issue goes ex on 7th June 2017

• Downgrade to NEUTRAL with TP of RM2.81 (ex-bonus TP: RM0.70)

9MFY17 earnings within expectations. For 3QFY17, GDEX posted revenue of RM61m and core net profit of RM8m which was up +14%yoy and +9%yoy respectively. On a cumulative basis, GDEX recorded 9MFY17 core net profit of RM39m (+17%yoy) came in within our expectations. At 62% of our full year forecast, we believe its fourth quarter will be its strongest, making up for lost ground.

Expansion is underway. For its third quarter, both EBIT and PAT margins slipped slightly by -0.5ppt yoy and -0.6ppt yoy following a rise in operating and depreciation expenses which outpaced revenue growth. GDEX is in the midst of ramping up its capacity, which incurs start-up costs before volume picks up: a) PPE on its balance sheet increased +22%yoy, b) Express delivery vehicle fleet stands at 864, from 768 as at end-March 2017 and 654 as at end-Dec 2016, c) Average daily sorting capacity can handle ~130k parcels/day from ~100k parcels/day as at end-Dec 2016. d) A further 60k parcel/day expansion is underway from its second Klang Valley hub in Sungai Buloh, slated to commence by 1HFY18.

3-for-1 bonus issue goes ex on 7th June 2017. We revise our prebonus target price to RM2.81 from RM2.28, following an increase in our growth forecasts in our DCF model. After the listing of 4,713,076,518 new shares on 9th June 2017, our target price will be adjusted to RM0.70.

Downgrade to NEUTRAL with TP of RM2.81 (ex-bonus TP: RM0.70). We value the company using a 2-stage discounted cash flow method (DCF) which assumes 1) WACC of 8.5%, 2) high growth period 2020-2027 of 9.5% and terminal growth rate of 3.5%. GDEX has had an outstanding run, with its share price ascending 79% year-to-date and 75% since our initiation back in December 2016. We believe the company is fully valued for now, hence our downgrade to NEUTRAL

Source: MIDF Research - 24 May 2017