Higher tax rate dents GDEX's 2QFY18 earnings as competition rises
KUALA LUMPUR: GD Express Carrier Bhd’s (GDEX) results for its second quarter of the financial year 2018 (2QFY18) was dragged by higher tax rates as analysts believe GDEX could be up against rising competition in an increasingly saturated industry.
In a filing on Bursa Malaysia, GDEX reported that its revenue for 2QFY18 came in at RM76.459 million, while its net profit was at RM6.589 million.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), GDEX’s cumulative first six months of FY18 (6MFY18) earnings of RM14.5 million came below expectations.
“The decline in earnings was mainly due to the higher tax rate of 45 per cent following the expiry of GDEX’s pioneer status tax incentive in September 2017. Prior to this, quarterly tax rates were at mid-teen levels,” it said.
Of note, GDEX saw its effective tax rate rising to 31 per cent from 16 per cent in the first half of 2017 (1H17).
“Despite the decline in 2QFY18 earnings due to higher tax rate, GDEX’s profit before tax (PBT) recorded an 11 per cent year-onyear (y-o-y) growth as better sales performance and savings from co-loading activities mitigated the increase in operating cost related to expansion activities.
“We opine that the PBT may be more sustainable once the company expands its capacity to tackle the intense competition in the industry,” MIDF Research said.
Meanwhile, it noted that in 2QFY18, GDEX’s logistics business staged commendable growths in its revenue and PBT which increased by 114.1 per cent y-o-y and 144.9 per cent y-o-y respectively, driven by the increase in demand in warehousing services during the year-end festive season.
It also pointed out that GDEX’s expressdeliverybusinessremained sturdy from higher demand for express delivery for e-commerce activities especially during major online sales held in November and December last year by major ecommerce platforms.
“As a result, the segment’s PBT and revenue increased by 14.4 and 4.3 per cent y-o-y respectively,” it added.
In a separate note, Kenanga Investment Bank Bhd’s research arm (Kenanga Research) believed that GDEX could continue its expansions.
“We believe continued business expansions to be likely given its rich net-cash position of RM316 million as most of its private placement funds still remain intact.
“However, GDEX is also expected to face increased competition from an increasingly saturated industry, which would continue to exert margin pressures,” it highlighted.
On the other hand, Kenanga Research believed that the higher tax expenses in the current quarterly results could be due to some provisions made against possible losses from its prior tax incentives.
“Nonetheless, we trimmed our FY18 to FY19E earnings by six to eight per cent following the results disappointment to account for higher tax assumption,” it added.
All in, Kenanga Research maintained its ‘underperform’ call on the stock.
“While we like the company for its good management and expansion story, we believe our current ‘underperform’ call to be compelling as valuations are seemingly overplayed at 106-folds price earnings ratio, with earnings growth outlook also appearing increasingly uncertain.”
Meanwhile, MIDF Research trimmeditsgrowthrateassumption for 2020 to 2027 from nine to 8.5 per cent amid the increasing competition in the express delivery industry.
“GDEX has had an outstanding run, with its share price appreciating as much as 50 per cent since early 2017. We believe that the company is fully valued for now, hence our ‘neutral’ recommendation,” it said.