GD EXPRESS CARRIER BHD

By MIDF Research Maintain Neutral Revised target price: RM0.46

THE acquisition of 44.5% SAP Express (SAP) shares by GDEX is projected to be positive in the long run as it enables the group to tap faster into the Indonesian express delivery landscape.

GDEX’s participation in the IPO of SAP exposes GDEX to the listing and legal requirements of merger and acquisition exercises, preparing the company if new expansions were to take place in Indonesia.

According to analysts, GDEX’s cash pile remains sizeable after taking into consideration the redemption of the five-year convertible issued by SAP worth 30 billion rupiah (RM8.2mil), the redemption premium worth 37.2 billion rupiah (RM10.2mil) and the RM25.8mil investment in shares of SAP Express.

GDEX is still in a next cash position above RM200mil and this would enable them to be on the lookout for further M&A opportunities in the region.

MIDF Research noted that GDEX’s 44.5% stake in SAP is currently only being recognised at fair value.

GDEX has yet to have a management agreement with SAP.

The auditors opined that as GDEX has yet to have a significant influence on SAP, the equity method of accounting is not applicable at this point of time to recognise the share of profit and losses from SAP.

Analysts are revising GDEX’s financial year 2020 earnings estimates upwards slightly to RM39mil in response to SAP breaking even by first half of 2019 (1HCY19) as the net loss recorded by SAP narrowed down by almost -20% year-on-year (y-o-y) to 1.6 billion rupiah or RM0.4mil.

In the meantime, interest income estimates for financial year (FY19) is reduced to reflect the lower net cash held by GDEX, lowering analysts FY19F earnings slightly to RM34.6mil.

Analysts are also conservatively estimating a profit margin of 1% in 2HCY19 in line with its comparable listed peer such as PT Trimuda Nuansa Cipta.

“While we are sanguine on the company’s expansion plans in the face of competition, valuations remain elevated at a FY20F PER of 69.2x, hence our ‘neutral’ recommendation,” MIDF said.

Re-rating catalysts for GDEX would be entry into other regional Asean countries which are Vietnam and Cambodia, stronger retail delivery network and services and the development of the Digital Free Trade Zone.

E-commerce will likely drive demand growth for air cargo and land logistics espe- cially last-mile delivery services.