INVESTMENT HIGHLIGHTS

• Results below expectations

• Earnings dented by higher tax rate

• Huge growth in logistics services

• Revise earnings downwards

• Maintain NEUTRAL with reduced TP of RM0.57 per share

Results below expectations. GDEX’s 2QFY18 revenue of RM76.5m grew by +16%yoy while core net profit reduced by -28%yoy to RM6.6m. Cumulative 6MFY18 earnings of RM14.5m lagged expectations, representing only 36% of our and consensus full year earnings estimates. The decline in earnings was mainly due to the higher tax rate of 45% following the expiry of GDEX’s pioneer status tax incentive in September 2017. Prior to this, quarterly tax rates were at mid-teen levels.

PBT level continues to rise. Despite the decline in 2QFY18 earnings due to higher tax rate, GDEX’s PBT recorded an +11%yoy growth as better sales performance and savings from co-loading activities mitigated the increase in operating cost related to expansion activities. We opine that the PBT may be more sustainable once the company expands its capacity to tackle the intense competition in the industry.

Huge growth in logistics services. In 2QFY18, the logistics business staged commendable growths in its revenue and PBT which increased by +114.1%yoy and +144.9%yoy respectively, driven by the increase in demand in warehousing services during the year-end festive season. Meanwhile, the express delivery business remained sturdy from higher demand for express delivery for e-commerce activities especially during major online sales held in November and December last year by major ecommerce platforms. As a result, the segment’s PBT and revenue increased by +14.4%yoy and +4.3%yoy respectively.

Looking ahead. We reckon that PAT margins may face compression in 2HFY18, assuming high tax rates unless GDEX receives an approval for a new tax incentive. Hence we are revising our earnings forecasts downwards by -11.6% for both FY18 and FY19 as we conservatively impute the corporate tax rate of 24% (previously 14%).

Source: MIDF Research - 23 Feb 2018