• Keep SELL and MYR0.14 TP, 18% downside, c.1% yield. GDEX’s 1Q23 results met expectations, with another loss-making quarter due to slow business activities and high opex. We believe the challenges within the last- mile delivery space will persist, with margins to remain under pressure due to the ongoing price war, and softer demand owing to the resumption of physical retail businesses.

• Widening losses. Despite a 7.2% YoY revenue growth to MYR98.5m, GDEX’s 1Q23 core net loss widened to MYR6.8m from MYR1.7m in 1Q22 – within expectations at 28% of our full-year estimates. The courier services segment’s revenue grew moderately by 1.7% YoY MYR 83.8m, lifted by B2B and C2C business activities, while LBT widened to MYR5.0m from a loss of MYR3.2m in 1Q22, due to higher minimum wages and IT maintenance costs. The logistics segment continued to underperform, mainly due to weaker logistics and warehousing activities, and higher warehouse maintenance and opex costs. QoQ, we note that the IT segment recorded a MYR0.3m loss, from 4Q22’s MYR1.1m PBT, due to a decrease in software customisation and distribution, and higher operating costs incurred.

• Courier landscape still challenging. The rise of e-commerce in recent years has strengthened the positioning of online marketplace players, which in turn, has eroded the pricing power and profitability of courier players. The introduction of “masking” – where sellers using online marketplaces are unable to select their preferred courier service provider, and parcels are mostly assigned to in-house logistics providers – has led to an environment of intense competition. While the Government has expressed its commitment to address issues relating to operating costs and competition – in order to meet its growth target for the e-commerce industry (30 packages/capita by 2025) – we have yet to see any impactful measures or initiatives.

• Valuation. Post results, we make no changes to our earnings forecasts and valuation. Our DCF-derived TP remains at MYR0.14, after incorporating a 4% ESG premium based on its ESG score of 3.2 (above the country median). We think GDEX’s current valuation is rich, trading at 31.1x FY23 EV/EBITDA – much higher than its historical and peer valuation.

• Key upside risks: Stricter policies and regulations such as minimum pricing per parcel, a spike in parcel delivery demand and ASPs, and lower-than- expected operating costs.

• ESG framework update. As there is now greater focus on the E pillar due to critical climate change issues, we have tweaked our ESG weightage. We assign a weightage of 50% to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research note Envisioning a Better Future.

Source: RHB Research - 30 May 2023