Investment Highlights

• We project net losses of RM90mil and RM24mil in FY20-– 21F and a net profit of RM31mil in FY22F (vs. a net loss of RM22mil in FY20F and net profits of RM31mil and RM44mil in FY21-–2F previously), largely to reflect lower revenues due to the company’s suspension on some of its’ operations and slower demand amidst the Covid-19 pandemic. We reduce our FV to RM0.58 (from RM1.21 previously), based on a P/B of 0.3x, a 50% discount to its historical P/B of 0.64x, to reflect the unprecedented challenges Pos Malaysia is facing. We downgrade our recommendation to SELL from HOLD.

• Pos Malaysia (Pos) will temporarily suspend its international mail and parcel services to most of its destinations (except China, Hong Kong, Japan, Singapore and the UK) with effect from 30 March 2020. This is due to the cancellation of flights as well as closure of airports. Based on our back-of-the-envelope calculation, the international mail/parcel services are estimated to make up around 15% of the company's revenues.

• Meanwhile, the express mail services (EMS) will continue with limited destinations (Exhibit 1), while its core segments, i.e. postal and courier services are operating at reduced capacity during the movement control order (MCO) period, despite being listed as one of the essential services as demand is subdued.

• We are now projecting greater contraction of 35% in mail volume in FY20F (vs. in the low 20s we assumed previously), as we believe the decline in commercial mail volume (which makes up around 90% of the total mail volume) will accelerate further with businesses stepping up on cost-cutting initiatives as revenues fall off the cliff. We also expect some volume losses on the back of business consolidation amid the economic downturn.

• We believe the main challenge for the company is its cost inefficiency as a result of a unionized workforce and its inability to significantly rationalize its extensive network of post offices. Not helping either, is the revenue loss with scaled down operations amidst the Covid-19 pandemic. Meanwhile, the courier segment continues to face intense competition, resulting in margin squeeze.

Source: AmInvest Research - 1 Apr 2020