KEY INVESTMENT HIGHLIGHTS

• 9MFY20 normalised PAT dipped by -52.5%yoy

• Decline in PBT growth of express delivery segment affected by low parcel volume during initial part of MCO

• Logistics services was in the red for 9MFY20 due to higher maintenance cost and supply chain disruption

• Nevertheless, PT SAP Express contributed to the increase in the share of profit of associates

• Earnings estimates unchanged as we believe the surge in parcels volumes in 4QFY20 will partially cushion the impact of intense competition

• Maintain NEUTRAL with a revised TP of RM0.48 per share

9MFY20 results below estimates. GD Express Carrier Berhad’s (GDEX) 3QFY20 normalised net profit dipped by -95.0%yoy to RM0.3m. This brings GDEX’s cumulative 9MFY20 net profit to RM10.9m (-51.7%yoy) accounting for around 50% of full year forecasts. The main reason for the negative deviation was the impact of the MFRS16 accounting treatment on leases and higher capital investment incurred for its regional expansion and information technology (IT) enhancement. Nevertheless, we deem the results to be within expectations as we expect that GDEX will benefit from the surge in parcel volumes handled in 4QFY20.

Express delivery PBT growth impacted by MCO. In 9MFY20, the express delivery business saw -39.7%yoy decline in PBT. The drop in the segment’s performance was mainly due to the Covid-19 pandemic, in which most of the B2B non-essential customers’ business operation being affected by the MCO. Therefore this impacted the demand of express services especially in the first week of the Movement Control Order (MCO) which saw parcels volumes decreasing by approximately 50.0%. As such, PBT margins of the express delivery segment in 9MFY20 declined by -5.1ppts to 6.9% from a year ago.

Logistics services remains subdued. Likewise, the logistics business recorded a loss before tax of –RM0.5m 9MFY20, cancelling off for PBT of RM4.9m a year ago. We opine that the lacklustre performance was partly attributable from the higher maintenance costs incurred for its warehouse operations. Moreover, disruption of the supply chain at the ports and the airports as well as impact on MFRS16 leases assessment on its warehouses dragged the performance of the segment.

Performance of overseas ventures. Notwithstanding the situation seen for the express delivery and logistics business, GDEX’s share of profit of associate substantially rose to RM5.0m in 9MFY20 compared to a loss of -RM0.1m a year ago. Management guided that the growth of this line item was partly contributed by its associate in Indonesia, PT SAP Express amidst the securement of sizeable contracts for its express delivery services and increasing revenue contribution from e-commerce which stands at 38%. As such, we deduce that PT SAP Express’s profit-after-tax for 1QFY20 (December FYE) could be higher by approximately >+500%yoy. Meanwhile, the acquisition of a 50% stake in Noi Bai Express and Trading Joint Stock Company (Netco) which is 50% owned by GDEX has started to contribute revenue post -acquisition in late December 2019.

Source: MIDF Research - 28 May 2020