Investment Highlights

• We maintain our HOLD recommendation, forecasts and fair value of RM0.90 for Pos Malaysia based on its historical P/B of 0.51x.

• Pos Malaysia reported a core net loss of RM54.7mil in 1HFY20, vs. our full-year forecast of an RM89.7mil net loss and the full-year consensus estimates of a RM53.0mil net loss. We consider the results within our forecast but below market expectations. The 1HFY20 core net loss narrowed by 48% from an RM105.7mil loss a year ago.

• Its 1HFY20 revenue was flattish YoY. The increase in revenue by the postal segment was offset by the decreases in revenues from the logistics and aviation segments.

• The consolidated postal services revenues (now include basic mail services, international mail and courier and parcels segments) increased by 4% YoY, thanks to: (1) higher parcel volume driven by e-commerce; and (2) the postal tariff hikes effective 1 Feb 2020.

• On the other hand, the logistics segment’s revenue declined by 4% YoY, we believe, mainly due to the lower demand for freight forwarding and haulages as business activities were muted during the movement control order (MCO) period.

• The aviation segment’s revenues dropped by 27% YoY, mainly due to loss of revenue from ground handling and in-flight catering brought about by flight cancellations globally following the Covid-19 pandemic outbreak.

• Meanwhile, its operating loss was cut by about half in 1HFY20 YoY thanks to a 7% reduction in cost of sales and operating expenses (mainly consisting of staff-related and transportation costs).

• We believe the new norms (accelerated digitalization, social distancing, proliferation of online shopping, etc.) in the aftermath of the Covid-19 pandemic are positive to the parcel delivery segment (of which Pos Malaysia is one of the top three players in Malaysia). However, this is offset by an overly crowded playing field with cut-throat competition resulting in razor-thin margins, if they even exist at all

Source: AmInvest Research - 26 Aug 2020