Rating: Buy
Target Price: AED4.45
Closing Price: AED4.40

Recurring earnings beat estimate on better margin

 
Aramex reported impressive earnings growth of 129% Y-o-Y, with earnings of AED132mn beating our forecast, driven by robust revenue growth, higher EBITDA margin (favorable revenue mix) and given a low base (4Q15 hit by one-off expenses), and FX gains (AED13mn for 2016, majority booked in 4Q16). Excluding one-offs, the results were still solid with earnings up 14% Y-o-Y, also above our estimate. For 2016, earnings grew 37% to AED427mn (including several one-off gains) and the proposed DPS of AED0.16 was 7% higher Y-o-Y and vs. our estimate (55% payout, 3.6% yield). We will likely adjust our forecasts and valuation to reflect the results and recent trends. In October, Aramex’s 60%-owned JV with Australia Post acquired the latter’s Star Track International (global e-commerce postal and supply chain solutions) for cUSD48mn. Aramex covered its share in the JV (cAED120mn) by selling MailCall Couriers in June 2016.

International express & Fastway boost top-line; LFL domestic express remains weak

 
Revenue grew a solid 18% Y-o-Y to AED1.16bn, driven by: i) strong growth in international express (record-high of 30%) on crossborder e-commerce (Asia, Europe, and the US in particular); ii) the Fastway acquisition, which boosted domestic express revenue (+30%); iii) consolidation of Egypt’s logistics operation that fueled 29% growth in logistics revenue. Freight forwarding revenue continued to decline (-9%) on lower selling rates. On a like-for-like basis, domestic express revenue continued to slide on the slowdown in the GCC, while logistics revenue returned to double-digit growth, likely on added warehousing capacity in Dubai.

Revenue mix & margin expansion in some segments offset Fastway consolidation pressure

 
The robust growth in high-margin segments as well as gross margin expansion in international express (+40bps) and freight forwarding (+3pp) offset the consolidation of Fastway that pressured domestic express margins. The gross margin widened 30bps Yo- Y to 57.3% for the first time since Fastway consolidation in Feb16. EBITDA grew 86% to AED169mn as the margin recovered Y-o- Y to 14.6% (from 9.3% in 4Q15 on one-off expense related to employee incentive scheme, +2.5pp versus estimate).

Wafaa Baddour, CFA