Investment Highlights

• We upgrade our recommendation to BUY from HOLD, increase our forecasts and raise our fair value by 48% to RM1.33 based on a higher P/B of 0.75x, at a premium to its historical P/B of 0.51x (from RM0.90 based on 0.51x P/B previously).

• We now project a smaller net loss of RM63mil in FY20F, and net profits of RM0.9mil and RM51.1mil in FY21F and FY22F respectively (from RM90mil and RM24mil net losses in FY20F and FY21F respectively, and RM30.7mil net profit in FY22F). Our revised projections are to reflect the improved operating performance at its postal segment (which includes basic mail services, international mail and courier and parcels segments) as well as smaller share of losses from certain non-core segments post restructuring.

• Pos Malaysia’s 9MFY20 results came in better than expectations with a core net loss of RM59.4mil, vs. our fullyear forecast of an RM89.7mil net loss and the full-year consensus estimates of a RM76.4mil net loss. The 9MFY20 core net loss narrowed by 56% from an RM135.1mil loss a year ago.

• Its 9MFY20 revenue rose by 4% YoY. The increase in revenues by the postal segment and logistics segment was partly offset by the decreases in revenue from the aviation segment.

• The consolidated postal services revenues (now include basic mail services, international mail and courier and parcels segments) increased by 10% YoY, thanks to: (1) higher parcel volume driven by e-commerce; and (2) the postal tariff hikes effective 1 Feb 2020.

• Meanwhile, the logistics segment’s revenue inched up by 2% YoY, mainly driven by higher demand for freight forwarding and haulages, which we believe, due to the pent-up demand post-movement control order (MCO) in 2Q. The company also highlighted that the rise in local automotive production volume has also contributed to the higher revenue.

• The aviation segment’s revenues dropped by 35% YoY, mainly due to a 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 threequarter in 9MFY20 YoY thanks to a 3% reduction in cost of sales and operating expenses (mainly consisting of staffrelated 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). Meanwhile, the National Postal and Courier Industry Laboratory (NPCIL) initiative, which aims to support the strategic development of the new postal and courier industry, could also be a game changer as the authorities start to acknowledge and address the issues of the overcrowded playing field in the sector (and has resulted in razor-thin margins for the players), which has weighed down the industry in the past.

Source: AmInvest Research - 25 Nov 2020