Investment Highlights

• We tweak our fair value (FV) down slightly to RM0.76 (from RM0.78 previously) for 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. Our FV is adjusted for a 3% discount to reflect our 2-star ESG rating for the company (Exhibit 3). Maintain HOLD.

• We now project a wider net loss of RM197.9mil for FY21F (from RM164.9mil projected previously), and tweak our FY22-23F earnings forecasts down slightly to RM89.2mil loss and a smaller profit of RM2.7mil respectively (from our previous projections of RM88.8mil loss in FY22 and RM3.6mil profit in FY23), to reflect a slower recovery of Pos Malaysia’s businesses from the Covid-19 impact due to the prolonged lockdown.

• Pos Malaysia earnings disappointed with a 9MFY21 core net loss of RM154.8mil, vs. our full-year net loss forecast of RM164.9mil and the full-year consensus net loss estimates of RM199.5mil.

• We believe the variance against our forecast came largely from the slower than expected recovery from its businesses, mainly dragged by the prolonged lockdown as a measure to curb the resurgence of Covid-19 cases locally.

• In 9MFY21, revenues from postal services declined by 13% YoY, primarily due to the drop in both mail volume and parcel volume, especially from the contract customers. The company previously guided that 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. The revenue decline has caused the EBITDA loss to widen to RM168.9mil from RM44.5mil loss in 9MFY20.

• Meanwhile, the logistics segment’s revenues increased by 12% YoY mainly driven by higher demand for freight forwarding service and automotive sector, which have seen increased number of vehicles shipped and commencement of a new warehouse. All businesses across the segment (i.e. automotive, marine and freight management) recorded improved profitability in 9MFY21, resulting in a small EBITDA of RM2.3mil vs. a RM25.3mil loss a year ago.

• Revenue from the aviation segment improved by 21% YoY, thanks to the higher contribution from higher cargo tonnage handled and increased number of flights as more international borders reopened. The revenue improvement, coupled with better cost management helped to narrow EBITDA losses to RM16.1mil from RM30.1mil a year ago.

• We are cautious of the significant drop in parcel volume handled by Pos Malaysia. The company’s operation is still being affected by the resurgence in Covid-19 infections locally. Nonetheless, we believe all is not lost for Pos Malaysia if it is able to get its act together given 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 - 17 Nov 2021