KEY INVESTMENT HIGHLIGHTS

• GDEX is eligible for tax incentive for its ILS activities

• Eligible for income tax exemption via Pioneer Status up to 70% on Statutory Income

• Price runs up prior to the announcement

• No management guidance yet, but positive expectation on the prospect

• FY22-23F earnings lifted by +10.9% and +9.7%

• Maintain NEUTRAL with revised target price of RM0.40 per share

Tax Incentive. GD Express Carrier Berhad’s (GDEX) announced yesterday that its wholly-owned subsidiary company GDSB, has received an approval letter from MIDA for the second round of tax incentive. This is to carry out Integrated Logistics Services (ILS) activities as an expansion project and e-commerce/e-fulfilment diversity project. The tax incentive is one of the initiatives introduced by the Government to enhance the capabilities of logistics services providers, in line with The Logistics And Trade Facilitation Masterplan, introduced by Ministry of Transportation back in 2015.

The details of incentives. According to the announcement, GDSB, through the tax scheme will be eligible for income tax exemption of up to 70% on its Statutory Income via “Pioneer Status” (PS) program for every year of its tax assessment for a period of five (5) years.

No guidance yet from management. At this juncture, the management has yet to quantify the expected amount of tax saving from the incentive as the details are still pending disclosures and negotiation with MIDA.

Our takes on earnings. While details on what entails within the tax incentive are still pending disclosures, we are upbeat on the impact of the tax incentive to GDEX’s earnings. We have taken the liberty to assess the tax savings within certain parameters, such as timing. Based on our preliminary deductions, pending further management disclosures, we estimate that the savings from the tax exemption could translate to between RM2.0m – RM3.5m for FY22-FY26. Hence, the tax exemption impact is significant in comparison to our previous earnings forecast for FY22F/FY23F at RM30.3m/RM32.8 – which is a +10.9% and +9.7% increase. This is derived by estimating tax exemption at 70% statutory income (we use PBT as statutory income approximation) and multiplies it with corporate tax rate at 24%, per our assumption. However, this estimate remains subjected to further disclosure from the management. Hence, we are revising our EPS forecast for FY22F/FY23F to 0.54/0.58 sen from our previous forecast of 0.48/0.53 sen. Key risk to our estimates is lower than expected earnings impact from the tax incentive as we wait for more communication from management on the salient details.

Target price. Following our earnings revision as we take into account the savings from the tax exemption; we are revising our target price to RM0.40 (from RM0.34 previously) based on DCF valuation.

Maintain NEUTRAL. Despite our positivity on the impact of the tax scheme, we maintain our call on the company. This is premised on the recent price surge that we deemed has accounted for the tax scheme. 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, (ii) increased adaption of offline businesses to GDEX’s online platforms; and (iii) permanent enforcement of social distancing measures which will limit footfall at brick and mortar businesses.

Source: MIDF Research - 11 Nov 2020