INVESTMENT HIGHLIGHTS

• FY19 normalised earnings exceeded expectations but was mainly due to reinstatement of pioneer status tax incentive

• Automated sorting hub in PJ expected to be finalised by end of FY20

• Higher yields pushed revenue of SAPX higher post-IPO

• Webbytes to be supported by high impact project by MAHB

• Earnings forecast unchanged

• Maintain NEUTRAL with an unchanged TP of RM0.30 per share

FY19 performance. Recall that, GD Express Carrier Berhad’s (GDEX) FY19 normalised net profit increased by +6.7%yoy to RM31.1m. This exceeded ours and consensus’ expectations, accounting for 106.9% and 124.4% of full year forecasts respectively. The main reason for the positive deviation was the reinstatement of pioneer tax status tax incentive which ended 30 September 2017. However, the PBT in FY19 was -70.6%yoy lower.

Automation plans slated by end of FY20. Average sorting capacity increased to 130,000 parcels per day in FY19 with the highest at 180,000 per day. For its automated sorting hub, at Hub 2 in Petaling Jaya, GDEX plans to finalise by the end of FY20 (initially expected in early FY20) which could raise the average sorting capacity to roughly around 180,000-200,000 parcels per day. As such we maintain our assumptions for the average sorting capacity at 150,000 and 180,000 parcels per day for FY20 and FY21 respectively.

Higher yields pushed PT SAP Express performance. GDEX’s 44.5% owned PT SAP Express (SAPX) in Indonesia saw revenue growing by almost +75.0%yoy for 6MFY19 (SAPX’s own financial year end). This is despite the higher average selling price for its products as SAPX increased brand reputation post-IPO enabled the company to win sizeable contracts.

Web Bytes continues to innovate offerings. Meanwhile, GDEX’s 32.7% owned associate has increased its regional exposure by marking presence not only in Malaysia but also Cambodia, Indonesia and Vietnam. More importantly, Web Bytes was awarded a project worth RM36m by MAHB to supply point-of-sale systems (POS) at its seven airports from 2020 to 2024. We opine the bulk of the contribution would be realised in FY22 for GDEX.

Earnings forecast. No changes made to our earnings forecast.

Target price. We are maintaining our TP at RM0.30 per share. We value the company using a 2-stage discounted cash flow method (DCF) which assumes a WACC of 12.0% to reflect the risk from the ongoing intense competition driven by the growth in the Southeast Asian e-commerce industry which is expected to be worth USD102b by 2025.

Maintain NEUTRAL. GDEX’s healthy balance sheet has supported the group’s various expansion plans. This includes acquisition of a 44.5% stake in SAP Express, an Indonesian courier company and on-going effort to secure a partnership in Vietnam by the end of CY2019 facilitated by Web Bytes through its cloud-based point-of-sale platform. Nonetheless, we view that the earnings accretion from these ventures has yet to be meaningful as both are still in gestation period. Meanwhile, valuation remains stretched at a 12-month trailing price-to-earnings ratio of 46.7x compared to the average industry of approximately 10.0x to 15.0x. All factors considered, we are maintaining our

NEUTRAL stance at this juncture. In the long term, rerating catalysts for GDEX would be: (i) slowdown in growth for last mile delivery start-up companies and (ii) stronger consumer-to-consumer (C2C) business demand.

Source: MIDF Research - 3 Sept 2019