KEY INVESTMENT HIGHLIGHTS

• Performance is within expectation

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

• Logistics services top line saw improvement

• Property continues to be a drag to overall performance

• Recall that GDSB has received an approval letter from MIDA for ILS tax incentive

• We are leaving our earnings estimates unchanged for FY21F and FY22F

• Maintain NEUTRAL with a TP of RM0.40 per share

Within expectation. GD Express Carrier Berhad (GDEX) recorded a 1QFY21 PATAMI of RM7.2m (-10.1%qoq and +51.1%yoy) on the back of higher revenue recorded at RM108.6m (+3.9%qoq and +30.8%yoy). This came in as a positive surprise as earnings deviated from ours and consensus expectation by +3.9% and +1.6% respectively. We deemed this performance to be broadly within expectation as we expect full year performance to achieve our estimate for FY21.

Express delivery saw positive growth due to MCO. In 1QFY21, the express delivery business saw a +26.6%yoy increase in revenue whilst it PBT surge by +37.4%yoy. The stellar performance of the segment was due to the increase in demand for courier services brought by the boom of e-commerce spending amid the pandemic.

Logistics services top line saw improvement. Likewise, the logistics business recorded an increase in revenue by +135.0%yoy in 1QFY21. PBT also saw significant leap by +117.3%yoy despite showing lower performances sequentially at -21.2%. The quarterly decline was mainly attributable to higher overhead costs incurred in the pick & pack activities to support the volume surge in express delivery activities during current CMCO period.

Property continues to be a drag. Property segment recorded widening loss before tax (LBT) in 1QFY21 at –RM0.7m (-28.5%yoy) on the back of RM0.1m revenue (-52.9%yoy). The LBT reported was due to decline in rental income as results of cessation of tenancy agreement by tenant and increase in property maintenance expenses during the period.

Long term industry prospect remains bright. 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 bode well for logistics players as increasing demand will contribute positively to GDEX’s financial performance. Furthermore, our view is that online shopping is here to stay and will continue to grow with potential to rival the size and scale of brick and mortar retailers in Malaysia.

Tax Incentive. Recall that GDEX’s wholly owned subsidiary, 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. 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.

We are upbeat on the tax incentive. Previously, in our report, “Year-End Bonanza”, we estimated and assessed the potential savings from the incentive. To reiterate, we estimate the tax impact to uplift the FY22F/FY23F earnings by +10.9% and +9.7%. 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. Earnings estimates. As of now, we are leaving our current earnings estimates unchanged for FY21F and FY22F as we opine that GDEX will be able to meet our earnings projections as the industry’s prospect remains positive in the foreseeable future.

Target price. We are maintaining our target price at RM0.40 per share, derived using DCF valuation method.

Maintain NEUTRAL. GDEX’s lean balance sheet with a net cash position of above RM150m has supported the group’s various expansion plans. This includes the acquisition of a 44.5% stake in PT SAP Express, and the acquisition of 55.0% stake in a Vietnamese company. Meanwhile, valuation remains stretched at a 12-month trailing price-to-earnings ratio of 126.5x compared to the average industry of approximately 24.5x. We believe that other non-listed players such as Ninja Van and J&T will remain as a threat in the next two to three years as these companies continue to aggressively grabbing market share. Furthermore, 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 - 27 Nov 2020