More cautious outlook adopted for GDEX

KUCHING: A more cautious outlook has been adopted for GD Express Carrier Bhd (GDEX) over the likelihood that the group might face margins pressures amid increasing competition, coupled with an expected increase in effective tax rates following the expiration of existing Malaysian Investment Development Authority (MIDA) tax incentives.

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) highlighted the the increasing competitiveness of the industry following the entrance of new players coupled with continued market share competition among existing established players. Going forward, it believed GDEX would likely continue facing margins pressures, given the price-elastic nature of the business, as well as the group’s continued efforts in retaining and increasing market share.

“Additionally, GDEX’s MIDA tax incentives are expiring by end of this month,” it said.

With no further developments regarding an extension, the research arm expected forward effective tax rate to increase accordingly.

MIDF Research noted that following continued restructuring efforts, GDEX’s average sorting capacity has increased to circa 90,000 parcels per day from circa 78,000 parcels per day last year.

“However, if necessary, the company is able to push its handled volume to reach a maximum capacity of 120,000 to 130,000 parcels per day, although this may lead to some cases of delayed deliveries.

“Fleet size has also increased accordingly to 831 from 654 last year,” it said.

Meanwhile, the research arm gathered that the plan for GDEX’s secondary sorting-hub in Sungai Buloh has been called-off. It pointed out that instead, GDEX is opting to focus on further upgrading the group’s existing main sortinghub in Petaling Jaya, Selangor, with installation of a new sorting line currently in the pipelines to ease existing sorting constrains.

Apart from GDEX’s earlier investments into PT SAP Express and WebBytes Sdn Bhd amounting to RM16 million, MIDF Research believed that future acquisitions are still likely.

“GDEX is currently sitting at a net-cash position of RM306 million, as most of its YAMATO private placement funds are still intact. We believe this war chest enables GDEX to be ever-ready should an investment opportunity presents itself,” the research arm said.

Post-briefing, MIDF Research tweaked its financial year 2018 to 2019 estimate (FY18-19E) earnings forecasts downwards by 13 to 19 per cent, to account for higher effective tax rates and margins pressures for GDEX’s express delivery business.