Investment Highlights

• We now project net losses of RM101.5mil and RM41.0mil for FY21–22F (vs. a RM62.0mil net loss and RM52.1mil net profit projected previously), and a smaller FY23F net profit of RM19.4mil (vs. RM78.5mil net profit projected previously). We reduce our fair value (FV) by 18% to RM0.85 (from RM1.04 previously).

• We now value Pos Malaysia based on a P/B of 0.60x, at a premium to its historical P/B of 0.45x to factor in the bright spot in the high-growth parcel delivery segment (vs. valuation basis of 16x FY22F EPS previously). Our FV is also adjusted for a 3% discount to reflect a 2-star ESG rating for the company as appraised by us (Exhibit 4). We downgrade our recommendation to HOLD from BUY.

• Pos Malaysia’s 1QFY21 results disappointed with widerthan-expected net loss of RM41.0mil vs. our full-year net loss forecast of RM62.0mil and the full-year consensus net profit estimates of RM2.6mil respectively. The variance against our forecast came largely from the poor showing from postal services due to the sustained high cost structure despite multiple cost rationalisation efforts being implemented. We believe it will be more prudent for us to reflect this structural weakness in our forecasts (until its numbers show otherwise).

• In 1QFY21, revenues from postal services rose 9% YoY, thanks to a full 3-month impact from the postal tariff hikes vs. only 2 months a year ago. To recap, the tariff hike took effect from 1 Feb 2020. The courier business recorded an 18% increase in parcel volume driven largely by contract customers. The higher revenues from postal services helped to narrow LBT slightly to RM46.8mil in 1QFY21 from RM49.9mil in 1QFY20.

• Meanwhile, the logistics segment’s revenues increased by 34% YoY mainly driven by higher demand for freight forwarding and transportation service from the automotive sector (we believe, due to higher production from Proton) and the commencement of a new warehouse. The higher revenues contributed to a small PBT of RM1.7mil vs. RM4.9mil losses a year ago.

• Revenues from the aviation segment dropped 31% YoY mainly due to lower ground handling, cargoes and in-flight catering as the impact from the pandemic was felt over the entire quarter (compared with a year ago when the pandemic had just started). The contraction in revenues widened its LBT to RM8.6mil from RM1.4mil in 1QFY20.

• We have turned more cautious on Pos Malaysia’s outlook as we believe it will take time for its operations to fully normalise/recover from the pandemic. Not helping either is the resurgence of Covid-19 cases locally, which will further disrupt its various operations. Apart from that, we are also cautious on Pos Malaysia's sustained high cost structure which casts doubt on the effectiveness of its multiple cost rationalisation initiatives.

• This is partially mitigated by the bright outlook for the parcel delivery segment (of which Pos Malaysia is one of the top three players in Malaysia) underpinned by: (1) the structural and irreversible change in consumer preference towards online shopping; and (2) the freeze on new courier licences in Malaysia from Sept 2020 to Sept 2022 to ensure rational competition in the segment.

Source: AmInvest Research - 27 May 2021