INVESTMENT HIGHLIGHTS

• Low earnings attributable higher tax rate in 2QFY18

• Launch of GDEX Signature in Avenue K

• Expansion of sorting capacity and warehousing space

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

Higher tax dampened earnings. To recall, GDEX posted a 2QFY18 normalised PAT RM6.6m, down by -28%yoy 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. As a result, management guided an additional tax of approximately RM8.0m to be paid in 2HFY18. In the meantime, GDEX is in the process of applying for a new tax incentive in the form of an Investment Tax Allowance (ITA).

Launch of GDEX Signature. The company launched ‘GDEX Signature’ in January 2018 located in Avenue K, Kuala Lumpur. GDEX Signature is GDEX’s venture into the retail market as it is a platform to launch its products at a very strategic location which could increase brand awareness among the mall visitors and retailers alike. Indirectly, this will enable GDEX to gather more information of the customers’ focus and subsequently improve their services to match the needs of customers.

Ramping up capacity. Management noted that it has commenced a new sorting line for its hub dedicated to Klang Valley, increasing the capacity to 130,000 parcels per day. Another sorting line is currently being developed and is expected to be operational in six to seven months’ time. The two lines which will be operating simultaneously will also serve as a backup in the event that one undergoes maintenance. Once the double sorting line is commissioned, total capacity is expected to increase further to around 160,000 parcels per day.

Warehousing strategy. GDEX’s warehouse is currently running at full capacity. Therefore, GDEX’s plans to overcome this situation by (i) shifting its warehousing operations which is situated at its head office to a warehousing space nearby and; (ii) renting a warehouse with a size of approximately 230,000 sqft in Shah Alam. We believe that the expansion of warehousing space will bode well for new potential customers as they see GDEX’s dual role as a warehousing and logistics service provider.

Source: MIDF Research - 27 Feb 2018