KEY INVESTMENT HIGHLIGHTS

• GDex’s 12MFY20 earnings came in below estimates at RM18.7m

• Express delivery PBT grew year-over-year due to MCO

• Property segment recorded widening LBT in4QFY20 at – RM1.3m following high property maintenance costs

• Earnings estimates unchanged as we believe the surge in parcels volumes in 1QFY21 will partially cushion the impact of intense competition

• Maintain NEUTRAL with a revised TP of RM0.34 per share

12MFY20 earnings below estimates. GD Express Carrier Berhad’s (GDEX) 4QFY20 normalised net profit increased by +11.7%yoy to RM9.48m. This brings GDEX’s cumulative 12MFY20 net profit to RM18.7m (-44.2%yoy) accounting for around 83.6% of our full year forecast. The main reason for the negative deviation was the impact of the MFRS16 accounting treatment on leases and increase in OPEX in logistics segment due to volume surge during EMCO and RMCO period which offset the increase revenue recognition from both the express delivery and logistics segments during the quarter.

Express delivery PBT saw positive growth due to MCO. In 4QFY20, the express delivery business saw a +12.8%yoy increase in revenue whilst it PBT surge by >100%yoy. The stellar performance was due to the increase in demand for courier services as more businesses resume operations during April-June period. We also note that there was a volume surge during the quarter attributed to increased E-commerce spending during the stay-at-home period. As such, PBT margins of the express delivery segment in 4QFY20 also increased by +16.9% to 17.1% from a year ago.

Logistics services top line saw improvement. Likewise, the logistics business recorded an increase in revenue and PBT by >100%yoy in 4QFY20. However, its full year performance failed to perform during the year partly attributable from the higher maintenance costs and labour costs incurred for its warehouse operations as the company grappled with volume surges.

High property maintenance costs widen segment’s loss.Property segment recorded widening loss before tax (LBT) in 4QFY20 at –RM1.3m (-54.1%yoy) on the back of RM0.1m revenue (- 19.0%yoy). This was primarily due to the high cost of property maintenance during the period. To note, most of the facilities are for internal usage.

Long term industry prospect remains bright despite intensifying competition. With more consumers incorporating online purchases as part of their shopping habit, we believe that the industry in on track for expansion. This in turn will well for logistics players as increasing demand will contribute positively to GDex’s topline and bottomline

Source: MIDF Research - 27 Aug 2020