GD Express’s FY17 results meet expectations, intense competition may impact margins

KUCHING: While GD Express Carrier Bhd’s ( GD Express) financial year 2017 (FY17) results have met expectations, analysts are projecting that intense competition may impact margins, going forward.

As per the group’s filing, GD Express revealed that net profit for the year ended June 30, 2017 amounted to RM36.83 million, up from RM34.44 million in the previous year’s corresponding period.

GD Express’ FY17 net profit of RM36.8 million came in within the research arm of Kenanga Investment Bank Bhd’s ( Kenanga Research) expectations at 96 per cent of its full-year forecasts, but below consensus at 90 per cent.

“We believe the discrepancy between our and consensus earnings forecasts were due to overoptimism by the market on GD Express’ e- commerce parcel delivery growth,” Kenanga Research said.

The proposed first and final dividend of 0.25 sen was also in-line with the research arm’s expectations.

Meanwhile, GD Express’ FY17 core net profit of RM39 million represented 96 per cent of the research arm of MIDF Amanah Investment Bank Bhd’s ( MIDF Research) and 95 per cent of consensus forecasts, within expectations.

“GD Express announced a dividend of 0.25 sen, within our expectations as well,” MIDF Research said.

MIDF Research noted that GD Express’ earnings before interest and tax ( EBIT) margin saw a slight decline, falling 0.8 percentage point ( ppt).

However, the research arm was not alarmed by the marginal drop in operating margin as the main cause was rising expenses, and not a substantial decline in pricing for express delivery charges.

“While GD Express is seen as an earnings beneficiary for e-commerce deliveries due to its pureplay courier services business nature, entrance of new players coupled with market share competition with existing established players further intensify the competitiveness of the industry,” Kenanga Research said.

The research arm believed GD Express is likely to continue facing margin pressures given the price elastic nature of the business.

It has however, noted that GD Express is currently sitting with net- cash of RM306 million as most of the private placement funds are still intact.

Thus, the research arm did not discount the possibility of further expansions, either inorganically through acquisitions, or organically through additional sortinghubs and distribution centres expansions.

All in, Kenanga Research made no changes to its FY18E earnings forecasts, while introducing FY19E numbers.