This article first appeared in The Edge Financial Daily on May 29, 2019

GD Express Carrier Bhd
(May 28, 29 sen)
Maintain neutral with a lower target price of 30 sen: GD Express Carrier Bhd’s (GDex) nine months of financial year 2019 (9MFY19) normalised net profit increased by 32% year-on-year (y-o-y) to RM22.6 million. This came in within our and consensus expectations, accounting for 77.6% and 72.1% of full-year forecasts respectively.

For 9MFY19, the express delivery business staged a decent revenue and profit before tax (PBT) growth of 7.2% y-o-y and 1.3% y-o-y respectively. We view that the festive season in February supported e-commerce demand. However, PBT margins of the express delivery segment in 9MFY19 declined by 0.8 percentage point to 14.5% from a year ago amid intense price competition from new players. Even on a quarterly basis, the third quarter of FY19 (3QFY19) saw PBT margins almost being halved at 8.8% from 15.3% posted in 3QFY18. Based on the latest data from the Malaysian Communications and Multimedia Commission, the number of courier licence holders remains high, at 113 as of May.

On the contrary, the logistics business in 9MFY19 recorded a loss before tax of -RM1.5 million, its third consecutive quarter of losses. The lacklustre performance was partly impacted by higher maintenance costs incurred for its warehouse operations especially for Hub 2 in Petaling Jaya and rental costs for warehouses such as Mapletree Logistics Hub in Shah Alam. All of these costs were necessary to provide more “value added services” to the customers in the express delivery segment without its revenue being recognised by the logistics services. Instead, the corresponding revenue is recorded by the courier segment.

As earnings came within expectations, we are making no changes to our FY19 and FY20 earnings forecasts. — MIDF Research, May 28