Investment Highlights

• We now project wider net losses of RM164.9mil and RM88.8mil for FY21–22F (vs. a RM101.5mil and RM41.0mil net loss projected previously), and a smaller FY23F net profit of RM3.6mil (vs. RM19.4mil net profit projected previously). We reduce our fair value (FV) for Pos Malaysia by 8% to RM0.78 (from RM0.85 previously).

• Our FV for Pos Malaysia is 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. Our FV is also adjusted for a 3% discount to reflect our 2-star ESG rating for the company (Exhibit 3). Maintain HOLD.

• Pos Malaysia disappointed with a 1HFY21 core net loss of RM110.1mil, already surpassing our full-year net loss forecast of RM101.5mil and the full-year consensus net loss estimates of RM65.8mil respectively.

• The variance against our forecast came largely from the poor showing from postal services due to the decline in both mail and parcel volumes handled, coupled with its 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 1HFY21, revenues from postal services declined by 9% YoY, primarily due to the drop in both mail volume (-20% YoY) and parcel volume (-17% YoY). The decline in the mail volume was a result of operational limitations arising from stricter SOPs for bulk mailers and financial institutions, while the contraction in the parcel volume was due to the closure of physical outlets by contract customers during the MCO period. Not helping either, was the high operating cost, partly stemming from higher transportation and delivery cost.

• Meanwhile, the logistics segment’s revenues increased by 32% 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. All businesses across the segment (i.e. automotive, marine and freight management) recorded improved profitability in 1HFY21, resulting in a small EBITDA of RM4.8mil vs. a RM20.9mil loss a year ago.

Source: AmInvest Research - 17 Aug 2021