GDEX to continue facing profit margin compression in coming quarters
KUCHING: GD Express Carrier Bhd (GDEX) will likely continue facing profit margin compression in the coming quarters, analysts opine in the latest results review of the group.
According to the research arm of MIDF Amanah Investment Bank Bhd ( MIDF Research), while GDEX’s financial year 2018 ( FY18) revenue grew by 17 per cent year on year ( y- o-y) to RM293 million, normalised net profit declined by 32.4 per cent y- o-y to RM25.1 million which represented less than 95 per cent of its and consensus full year earnings estimates.
“We reckon that GDEX will continue to face profit margin compression in the coming quarters,” MIDF Research said.”
“This is premised on the assumptions that expansions plans are still being carried out and new entrants are increasing.” MIDF Research thus revised its FY19 earnings forecasts downwards by six per cent to RM34.9 million as the research arm input a more conservative FY19 revenue growth assumption of less than 15 per cent.
In-line with the reduction in its FY19 earnings, the research arm reduced its target price to RM0.44 per share from RM0.49 per share previously.
“We value the company using a two- stage discounted cash flow method ( DCF) which assumes a weighted average cost of capital ( WACC) of 8.8 per cent, and terminal growth rate of two per cent.”
“While we are sanguine on the company’s expansion plans in the face of competition, valuation remains elevated at a FY20F price earnings ratio ( PER) of 67.9- fold, hence our ‘ neutral’ recommendation.”
MIDF Research noted that rerating catalysts for GDEX would be early conversion of bonds to equity which will result in a 40 per cent equity stake in PT Satria Antaran Prima, lower effective tax rate if new tax incentive is granted and the development of Digital Free Trade Zone ( DTFZ), located near KLIA.
“E- commerce will likely drive demand growth for air cargo and land logistics especially last-mile delivery services.”