INVESTMENT HIGHLIGHTS

• Briefing centred on increasing OPEX to remain operationally competitive

• Sorting capacity increased with new multi sorting hub in Kuching, Sarawak

• Web Bytes contributed to operational efficiency

• Maintain NEUTRAL with TP of RM0.59 per share

1QFY18 analyst briefing. We attended GDEX’s 1QFY18 analyst briefing which was hosted by Mr. Teong Teck Lean (MD), Mr. Jerry Lee (IR) and Ms. Chan Hsu Yan (IR). The briefing centred on GDEX’s first quarter performance which saw its core net profit declining slightly by -3%yoy while highlighting some synergistic benefits from its strategic associates.

Earnings dented by increasing OPEX. The company emphasised that the +21%yoy increase in operating expenses was mainly due to: (i) increase in staff costs which had its headcount growing by 80 to 3,593 coupled with a revision in incentives; (ii) establishment of six new branches to its domestic network; and (iii) warehouse space expansion to 144,576sqft. As a result, the overall EBIT margin and PAT margin declined by -3.1ppt(yoy) and -2.5ppt(yoy) respectively. Nonetheless, we believe the increase in operational assets is necessary in order to remain operationally competitive due to the rising demand in e-commerce activities.

Sorting capacity ramped up. With efficient operational planning, GDEX’s average sorting capacity has increased to approximately 100,000 parcels per day in 1QFY18 (from 96,000 parcels in FY17) with a maximum capacity of 120,000-130,000 parcels per day, translating into a utilisation rate of 80%. This is in tandem with its newly established multi sorting hub in Kuching in addition to its three other hubs located in Petaling Jaya, Penang and Johor.

Leveraging on Web Bytes. GDEX leveraged on its strategic associate, Web Bytes to develop an in-house mobile application for its couriers which went operational in July 2017. The mobile application enables its couriers to track pickup and delivery of parcels on a real-time basis, improving operational efficiency. As the B2B segment remains dominant contributing near 70% of its revenue but the B2C segment approximately at 30% with tight margins. Henceforth, GDEX is on the plan to develop further application with Web Bytes to aid its entrance into the C2C segment.

Maintain NEUTRAL with unchanged TP of RM0.59. We value the company using a 2-stage discounted cash flow method (DCF) which assumes a WACC of 9.0%, and terminal growth rate of 3.0%. We note that GDEX has constantly achieved PBT margins which are on average, +7ppts higher than its peers. GDEX’s share price has had an outstanding run, with its share price advancing above +40% year-to-date. At this juncture, we believe that the company is fully valued for now, hence our NEUTRAL recommendation.

Source: MIDF Research - 7 Dec 2017