• Downgrade to Neutral post share price hike; awaiting a catalyst We downgrade the stock to Neutral as the share price has surged 25% since mid-July, and is trading close to peers, amid changes in its ownership: i) 16.45% Alabar-led groups (9.9% from founder, 6.55% from other investors at AED4.4/share); and ii) 4.5% Australia Post. We highlight upgrade catalysts: i) 60%-owned JV with Australia Post to benefit from rapid e-commerce growth in the APAC region; JV will acquire Australia Post’s StarTrack e-commerce subsidiary and Aramex will contribute Mail Call assets to the JV; and ii) expansion strategy post change in ownership.
• Raise FV by 6%; solid e-commerce growth, wary on GCC domestic We raise our FV by 6% to AED4.45 and adjust our forecasts to reflect: i) consolidation of Fastway and Aramex Mashreq; ii) deconsolidation of Mail Call ahead of its sale (expected in 3Q16); included in our valuation at BV; iii) debt to finance acquisitions; and iv) operational trends; sustained solid e-commerce revenue (int’l in particular) and weaker GCC domestic express.
• Acquisition-driven revenue growth in 2016, offsets weaker domestic We expect 14% revenue growth in 2016, with flat recurring earnings as Fastway & growth in int’l express will offset a weaker domestic, less favourable FX and higher costs. While the EBITDA margin was pressured in 2015 (one-time incentive scheme adjustment), we expect it will remain flat due to Fastway’s lower margin (GP of c36%). One-off gain in 2016 and adjustment in 2015 should boost earnings 25%, in our view. We expect a flat DPS, given a high capex and investment bill. For 2017, we expect 11% recurring earnings growth on sustained int’l express growth (margin accretive), contribution from 50k sqm owned-warehouse in Dubai (3Q16), and lower finance cost, while we remain wary on domestic express (GCC) and freight forwarding.
• 2Q16 earnings soar on one-off gain; operationally flat Net profit grew 36% Y-o-Y, due to a one-off gain on Aramex Marsheq. Revenue grew 17% (inline), driven by int’l express and Fastway & Mashreq consolidation. This offset stagnant LFL revenue for domestic express, logistics, and freight forwarding. EBITDA margin fell 2.1pp to 12.2% on low-margin Fastway and higher costs. Recurring earnings fell 9%, missing estimate.

Wafaa Baddour, CFA