Investment Highlights

• We maintain our SELL recommendation on Pos Malaysia (Pos) with a fair value of RM1.33 pegged to a PB of 0.6x.

• Pos said that it will revise its international postage rates in tandem with the price increase by the Universal Postal Union (UPU) starting January 2020 to align its operation cost.

• The company guided for postage rates for delivery to increase by 30% to 210% starting next year, and may further increase by up to another 50% in 2021. This is due to the US increasing its terminal dues rates, as well as other countries reaching an agreement to increase their own postal rates. International mails/parcels make up about 5% of total postal traffic of Pos.

• We believe the hikes in international postage rates by Pos will effectively allow Pos to pass on the higher cost to the consumers, and hence the impact on its earnings is neutral.

• Having said that, we are mindful that higher postage rates will hasten the digitalization of physical mails, hurting the postal volume. For now, we maintain our assumptions that the overall postal traffic of Pos will decline by 15%, 10% and 5% in FY19–21F, vs. a 12% drop in FY18.

• We keep our SELL recommendation on Pos as its' postal segment continue to suffer from cost inefficiency while we reiterate our view that any potential postal tariff hike will only be a temporary relief to the segment's woes. Meanwhile, the courier segment continues to face price and cost pressures which are eating into its margins

Source: AmInvest Research - 29 Oct 2019