KUCHING: GD Express Carrier Bhd’s (GDEX) financial year 2018 (FY18) and FY19 earnings have been left unchanged by analysts, despite the expected increase in average sorting capacity.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), in spite of the expected increase in average sorting capacity, it opined earnings upside to be capped by pricing pressure fuelled by intense competition from new entrants.
“Henceforth, we are making no changes to our FY18 and FY19 earnings forecasts at this juncture,” MIDF Research said.
On another note, MIDF Research highlighted that management commented that it has cleared all the additional tax payments of approximately RM8 million in FY18 and is in the process of applying for a new tax incentive.
“We are maintaining our conservative tax rate assumption of 25 per cent for both FY19 and FY20 at this juncture.”
MIDF Research, which left its target price of RM0.44 per share unchanged, had valued the company using a two-stage discounted cash flow method (DCF) which assumes a weighted average cost of capital (WACC) of 8.8 per cent, and terminal growth rate of two per cent.
In addition to tougher competition which may limit earnings growth from the company’s expansion plans, valuations remain elevated at a FY20F price earnings ratio (PER) of 67.1-fold, hence the research arm’s ‘neutral’ recommendation.
MIDF Research further noted that rerating catalysts for GDEX would be stronger delivery services network in the customer-to-customer (C2C) market, new regional expansion apart from Indonesia and the development of Digital Free Trade Zone (DTFZ), located near KLIA.
“E-commerce will likely drive demand growth for air cargo and land logistics especially last-mile delivery.”