Investment Highlights

• We maintain our HOLD recommendation on Pos Malaysia (Pos) with a lower FV of RM1.21 pegged to a P/B of 0.6x (from RM1.34 previously). We now project wider net losses of RM22.4mil, net profits of RM30.7mil and RM43.5mil in FY20–22F (vs. net losses of RM9.6mil and net profit of RM9.8mil in FY20–21F previously).

• Pos disappointed in FY2019 (9M – Apr to Dec, it recently changed its FY to Dec from March) with a wider core net loss of RM119.2mil, vs. our net loss forecast of RM69.9mil and consensus loss estimates of RM58.9mil for Apr–Dec 2019 (9M). We believe the variance against our forecast arose mainly from lower-than-expected revenues, coupled with higher-than-expected finance costs and taxes.

• Pos’ Apr–Dec 2019 (9M) revenue declined 4% YoY as all segments reported lower revenues except for its international, logistics and others segments.

• The postal services revenue was down by 11% dragged by the continuous structural decline in traditional mail volume (estimated to be at 14% YoY), largely due to electronic substitution. The courier segment’s revenue contracted by 2% YoY, attributed to the volume losses as a result of the malware attack incident in Oct 2019, which the company claims to have impacted several major system functionalities, resulting in the loss of one to two months of parcel and bulk mail volume. The intensified competition in the sector also led to lower pricing for the segment. The aviation segment recorded lower tonnage of cargo during the period.

• The international segment’s revenue was held up by a revision in pricing, which has been in place since April 2019. The logistics segment saw higher revenue, mainly contributed by haulage and automotive logistics.

• Operating losses surged 4x as compared to a year ago, we believe, was mainly due to escalating operating costs, particularly staff costs and other operating expenses. The widened operating losses from postal services of RM201.9mil (vs. RM147.5mil a year ago) and the international segment’s RM14.9mil (vs. RM8.7mil a year ago), more than offset the improved performance from the aviation segment (RM32.4mil) and others (RM22.9mil). Not helping either, was a steep drop in the courier service’s operating profit (-84% YoY), and the logistics segment which has turned loss making (to RM1.9mil losses vs. Rm5.7mil profit previously).

Source: AmInvest Research - 26 Feb 2020