• The Malaysian Communication and Multimedia Commission (MCMC) has announced a two-year moratorium on the issuance of courier service licence, effective 14 September 2020 until 15 September 2022.
• During the enforcement period, it will not accept any new licence application for all categories of courier services.
• It will also draft a new action plan via the National Postal and Courier Industry Laboratory (NPCIL) to support the strategic development aspirations of the new postal and courier industry, and shall publish the report at the end of November. This will give more clarity on the future prospect of the segment moving forward.
• We believe the latest development is mildly positive for all existing courier service players including Pos Malaysia, as it puts a stop to the entry of new players. However, aspiring players could still gain entry via the acquisition of existing players. Meanwhile, in the absence of a major consolidation, the playing field remains crowded with 109 courier service licensees in Malaysia.
• We maintain our HOLD recommendation, forecasts and fair value of RM0.90 for Pos Malaysia based on its historical P/B of 0.51x.
• 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, as mentioned.
• Also, postal service providers around the global, Pos Malaysia included, are fighting a losing battle in the dying snail mail business. In order to survive, they need to: (1) cut cost; and (2) reinvent. We believe Pos Malaysia’s hands are tied given its unionised workforce. Meanwhile, its courier segment could be considered a “reinvention” (and it has an advantage over its competitors given its extensive legacy post office network). However, the segment is weighed down by cut-throat competition as mentioned.

Source: AmInvest Research - 27 Oct 2020