GDex to continue facing margin pressures, say analysts

PETALING JAYA: GD Express Carrier Bhd (GDex), which posted a weaker set of results for the first quarter of financial year 2018 (Q1’18) is likely to continue face margin pressures due to competition in the sector, say analysts.

According to Kenanga Investment Bank Research while GDex could be seen as an earnings beneficiary of e-commerce delivery because of its pure-play courier services, entrance of new players coupled with competition from existing established players further intensifies competition within the industry.

“We believe GDex is likely to continue face margin pressures given the price elastic nature of the industry,” the research house said in its report yesterday.

It reiterated its “underperform” recommendation on the stock and the target price was also left unchanged at 45 sen.

Nevertheless, Kenaga said that the results were deemed broadly in-line with expectations as the first quarter was usually a seasonally weaker period.

The courier delivery provider’s bottom line dipped by 2.6% from RM8.1mil in the same period last year due to falling margins as a result of increasing industry competition.

Its net profit of RM7.9mil in the Q1’18 marked the second consecutive quarter of earnings decline on a year-on-year-basis. Net profit margin fell to 11.5% in Q1’18, as compared to 14% in Q1’17. Kenaga pointed out.

Operating expenses were higher by 21%, outpacing revenue growth of 18.5%, which were contributed mainly by its e-commerce volumes.

Meanwhile. MIDF Research maintains its “neutral” call on the stock, but with a reduced target price.

“We reduce our target price to 59sen from 70sen previously as we trim our growth rate assumption for 2020-2027 from 9.5% to 9% amid the increasing competition in the express delivery industry.