Investment Highlights

• We maintain our forecasts, but increase our FV by 55% to RM0.90 based on its updated historical P/B of 0.51x (RM0.58 previously based on 0.3x P/B, which was at a 50% discount to its previous historical P/B of 0.64x). The removal of the discount is to reflect: (1) the much improved market sentiment since our last report on Pos Malaysia in early Apr 2020; and (2) the new norm (accelerated digitalization, social distancing, proliferation of online shopping, etc) in the aftermath of the Covid-10 pandemic that are positive to the parcel delivery segment (of which Pos Malaysia is one of the top three players in Malaysia). We upgrade our recommendation to HOLD from SELL.

• Pos Malaysia reported a core net loss of RM29.7mil in 1QFY20, vs. our full-year forecast of a RM89.7mil net loss and the full-year consensus estimates of a RM13.2mil net profit. We consider the results within our forecast but below market expectations. The 1QFY20 core net loss narrowed by 69% from a RM96.5mil loss a year ago.

• Its 1QFY20 revenue declined by 6% YoY as all segments reported lower turnover except for the logistics segments.

• The consolidated postal services revenue (now includes basic mail services, international mail and courier and parcels segments) was down by 8%, due to the continuous structural decline in traditional and international mail volume (estimated to be at 35% YoY), which could be accelerated further in the aftermath of the pandemic as businesses step up on cost-cutting initiatives.

• Not helping either, was the cancellation of commercial and cargo flights and the suspension of business activities by Pos' international partners, which hurt international mail volume further.

• Meanwhile, the courier segment’s revenue declined by 10% despite a 7% increase in parcel volume as players in the industry resorted to aggressive pricing strategy to boost their market share.

• The aviation segment’s revenue declined by 4% mainly due to flight cancellations following the Covid-19 pandemic outbreak.

• The logistics segment revenue rose by 3%, we believe, benefiting from its freight management business on the back of thriving glove manufacturing and recycled paper processing activities locally.

Source: AmInvest Research - 16 Jun 2020