INVESTMENT HIGHLIGHTS

• Seasonally stronger in the fourth quarter

• Full year FY17 earnings met expectations

• Operating expenses rose at a faster pace compared to revenue due to higher staff headcount and new vehicles

• EBIT margin declined slightly, but does not alarm us

• Maintain NEUTRAL with unchanged TP of RM0.70

Seasonally stronger 4Q. For the fourth quarter of FY2017, GDEX posted revenue of RM65m and core net profit of RM13.6m which was flat yoy but an improvement of +70%qoq. The fourth quarter is seasonally the best performing for GDEX, due to the Raya festivities which bodes well for the e-commerce segment and fewer public holidays which underpins the B2B business.

12MFY17 earnings met estimates. On a cumulative basis, GDEX recorded 12MFY17 core net profit which grew +11%yoy to RM39m. This represents 96% of ours and 95% of consensus forecasts, within expectations. GDEX announced a dividend of 0.25 sen, within our expectations as well.

Operating expense rose quicker than revenue. 12MFY17 revenue grew +14%yoy with the express delivery business contributing the bulk of growth (segmental revenue grew +15%yoy) contributed by growth in both the B2B (corporate) and B2C (e-commerce) divisions. However, operating expenses rose at a faster pace of 18%yoy, largely due to an increase in staff headcount and the purchase of new delivery vehicles.

As such, EBIT margin saw a slight decline, falling -0.8ppt. However, we are not alarmed by the marginal drop in operating margin as the main cause was rising expenses, and not a substantial decline in pricing for express delivery charges.

Maintain NEUTRAL with TP of 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 60% year-to-date. We believe the company is fully valued for now, hence our NEUTRAL recommendation.

Source: MIDF Research - 30 Aug 2017