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.
KUALA LUMPUR: Kenanga Investment Bank Research has reiterated its “Underperform” recommendation on GD Express Carrier Bhd (GDex), as the company’s financial results in the first quarter of financial year 2018 (1Q18) were broadly in-line with expectations.
The target price was also left unchanged at 45 sen.
The research house said on Tuesday that while GDex delivered a weaker result in the quarter due to increased competition in the sector, it was within expectations given the company’s first quarter usually being a seasonally weaker period.
Falling margins as a result of increasing industry competition have caused the courier delivery provider’s bottom line to dip by 2.6% from RM8.1mil a year earlier.
To note, net profit margin fell to 11.5% in 1Q18, as compared to 14% in 1Q17.
Operating expenses were higher by 21%, outpacing revenue growth of 18.5%, which were contributed mainly by its e-commerce volumes.
“Coming in at 20% and 19% of our and consensus full-year FY18 earnings forecasts respectively, we deem 1Q18 net profit of RM7.9mil to be broadly within expectation on the back of a seasonally weaker first quarter.
“Moving forward, we believe GDex will continue facing margin pressures as competition continues to intensify. With most of the private placement funds still intact, we believe further inorganic growth is still likely,” said Kenanga Research in a note.
The research house also added that intense sectoral competition will continue to impact GDex’s margins. This was on the back of the entrance of new players coupled with competition with existing established players.
The courier delivery provider is also likely to continue facing margin pressures given the price elastic nature of the industry. However, due to its pure-play courier services business nature, GDex is seen as an earnings beneficiary in the e-commerce delivery segment going forward.
“As GDex is currently sitting on net cash of RM316mil, we believe further inorganic growth is still likely, with the management currently still pro-actively seeking further strategic investment opportunities to enhance its longer-term competitiveness,” it stated.
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