Highlights

Pos Malaysia - Losses Narrowed in 2QFY20

Date: 26/08/2020

Source  :  KENANGA
Stock  :  POS       Price Target  :  0.90      |      Price Call  :  HOLD
        Last Price  :  0.93      |      Upside/Downside  :  -0.03 (3.23%)
 


1HFY20 net loss narrowed to RM68m compared to our full year net profit estimate of RM66m and consensus net loss of RM53m. We expect a stronger 2H considering that the narrowing losses in 2QFY20 and postal returning to the black are encouraging signs of the group turning around. TP is RM0.90 based on 10x FY21E EPS. Reiterate MP.

Results’ highlights. QoQ, 2QFY20 net losses narrowed to RM19m compared to RM49m in 1QFY20 due to postal services returning to the black but was offset by higher losses at aviation (mainly due to loss of revenue from ground handling and in-flight catering pursuant to flight cancellations in the wake of COVID-19 pandemic where international borders were mostly closed) and logistics.

YoY, 1HFY20 postal segment’s revenue was largely contributed by courier business (45%) followed by mail business (32%). The high parcel volume pursuant to the stronger demand from e-commerce and online marketplace contributed positively to its courier business. Furthermore, the postage rates revision effective 1 February 2020 also impacted positively on the postal segment revenue. However, its aviation division suffered losses due to loss of revenue from ground handling and in-flight catering pursuant to flight cancellations in the wake of COVID-19 pandemic where international borders were mostly closed. As such, 1HFY20 losses narrowed to RM68m compared to RM156m in 1H 2019 (Jan – June) largely due to the postage tariff revision in Feb 2020.

Outlook. Meanwhile, POS’ inability to close down post offices, coupled with its unionised workforce could well mean profitability at its postal services segment is capped. The courier business will continue to operate in a competitive environment pressured by price and cost challenges. The group is continuing with its efforts to manage cost whilst increasing operating efficiency. The Integrated Parcel Centres (IPC) in Shah Alam and a newly completed facility in KLIA has increased its processing capacity by 77% from 300,000 to 530,000 parcels per day.

Reiterate MP. Our TP is RM0.90 based on 10x FY21E EPS. The saving grace is a 4% dividend yield.

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

Source: Kenanga Research - 26 Aug 2020

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POS 0.93 +0.025 (2.76%) 24,617,700 

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