INVESTMENT HIGHLIGHTS

• 9MFY19 normalised earnings met our expectations

• Express delivery business partially buoyed by e-commerce demand during the festive season

• Logistics services segment remains in the red due to the costs incurred for warehouse maintenance and rental to fulfil “value added services”

• Earnings forecast unchanged as results were within expectations

• Maintain NEUTRAL with a revised TP of RM0.30 per share after ascribing a higher WACC to reflect the higher risk of competition

9MFY19 earnings in line with expectations. GD Express Carrier Berhad’s (GDEX) 9MFY19 normalised net profit increased by +32.0%yoy to RM22.6m. This came in within ours and consensus’ expectations, accounting for 77.6% and 72.1% of full year forecasts respectively.

Express delivery business lifted by festive season. In 9MFY19, the express delivery business staged a decent revenue and PBT growth of +7.2%yoy and +1.3%yoy respectively. We view that the festive season in February supported e-commerce demand. However, PBT margins of the express delivery segment in 9MFY19 declined by -0.8ppts to 14.5% from a year ago amidst intense price competition from new players. Even on a quarterly basis, 3QFY19 saw PBT margins almost being halved at 8.8% from 15.3% posted in 3QFY18. Based on the latest data from the Malaysian Communications and Multimedia Commission (MCMC), the number of courier licence holders remains high, at 113 as of May 2019.

Logistics services remains subdued. On the contrary, the logistics business in 9MFY19 recorded a loss before tax of –RM1.5m, its third consecutive quarter of losses. The lacklustre performance was partly impacted from the higher maintenance costs incurred for its warehouse operations especially for Hub 2 in PJ and rental costs for warehouses such as Mapletree Logistics Hub in Shah Alam. All of these costs were necessary to provide more “value added services” to the customers in the express delivery segment without its revenue being recognized by the logistics services. Instead, the corresponding revenue is recorded by the courier segment.

Earnings forecast. As earnings came within expectations, we are making no changes to our our FY19 and FY20 earnings forecasts.

Source: MIDF Research - 28 May 2019