Kenanga Research & Investment

Author: kiasutrader   |   Latest post: Wed, 20 Nov 2019, 12:17 PM


Pos Malaysia Berhad - 1Q19 In The Red, The Usual Suspects

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1Q19 (due to FYE changed from Mar to Dec) core net loss of RM15m compared to our/consensus full-year net loss estimates of RM15m/RM40m came in below expectations. The variance to our estimate was due to weaker-thanexpected performance in the postal services segment. Postresults, we forecast wider losses of RM41m/RM54m for FY19/FY20. Downgrade TP from RM1.30 to RM1.25 based on 0.6x FY20E BVPS. Reiterate UP.

1Q19 (due to change in FYE from Mar to Dec) core net loss of RM15m compared to our/consensus net loss estimates of RM15m/RM40m came in below expectations. The variance to our estimate was due to weaker-than-expected performance from the postal services segment. No interim dividend was declared in this quarter as expected.

Results’ highlights. YoY, 1Q19 entered into a loss of RM15m compared to net profit of RM5m due to widening losses from mail segment (+65%) as a result of declining mail volumes (-18%) reflecting the increasing substitution of letters with electronics media and elevated opex to serve the Universal Service Obligation (USO). However, Courier segment recorded higher revenue (+10%) mainly driven by continuous growth in e-Commerce sector as well as increased demand from online business customers which saw its bottom-line growing 8%.

QoQ, 1Q19 core losses narrowed to RM15m compared to RM38m (excluding RM39.6m goodwill impairment in Pos Logistics as a result of a performance that was below expectation due to competitive market conditions and provision for onerous contract for the redelivery charges of leased aircraft of RM44m) due to: (i) turnaround in courier business (from loss making to a profit of RM28m), and (ii) logistics and aviation recording a profit of RM6.7m from a loss of RM4.1m in 4Q19.

Outlook. We believe POS is suffering from an environment of elevated opex at this current juncture. Intensifying competition coupled with continued expansion efforts have led to stagnating margins, thus causing profit deterioration despite volume and revenue growth. Meanwhile, given POS’ inability to close down post offices, coupled with its unionised workforce and losses in its postal services segment, losses are only expected to continue moving forward. The courier business continues to operate in a competitive environment pressured by price and cost challenges. The group continues its efforts to manage cost whilst increasing operating efficiency. The Integrated Parcel Centres (IPC) in Shah Alam and newly completed facility in KLIA has increased the processing capacity by 77% from 300,000 to 530,000 parcels per day.

Forecast wider losses for FY19/FY20. Due to the weak set of results, we now forecast wider losses of RM41m/RM54m for FY19/FY20 after accounting for higher losses in its postal services.

Maintain UNDERPERFORM. Our UNDERPERFORM call is premised on its earnings uncertainty going forward. TP is lowered from RM1.30 to RM1.25 based on an unchanged 0.6x FY20E BVPS (-1.5SD below 5-year historical forward mean). We are using PBV methodology due to the uncertain and volatile quarterly earnings ahead.

Risks to our call include: (i) lower-than-expected losses in postal services and (ii) better-than-expected margins in its courier segment.

Source: Kenanga Research - 21 Aug 2019

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