Investment Highlights

• We maintain our HOLD call on Pos Malaysia with a lower fair value (FV) of RM0.52/share (from RM0.76/share previously) based on a P/B of 0.6x. Our FV is further adjusted for a 3% discount to reflect our 2-star ESG rating for the company (Exhibit 3).

• Following a recent company meeting, we now expect a wider FY22F net loss of RM99mil (from RM89mil previously) as well as a slight net loss of RM10mil in FY23F (from net profit of RM3mil previously) to mainly account for lower mail and parcel volumes.

• Nevertheless, we project the company to return to profitability in FY24F with a net profit of RM48mil on improved profit margins following the implementation of various cost-saving initiatives such as workforce reduction and consolidation of mail and parcel networks.

• Recall that the company’s 1QFY22 postal revenue decreased by 15% YoY in tandem with a drop in parcel volume mainly due to:
  (i) consumers’ purchasing trend shifting from online transactions to brick-and-mortar shopping amid eased movement restrictions;
  (ii) major e-commerce players leveraging on their insourced delivery capabilities; and
  (iii) international players pursuing penetration strategies to capture higher market share.

• Despite the YoY lower revenue, the postal segment recorded a narrower 1QFY22 loss before tax of RM36mil, which represents a 24% YoY improvement from 1QFY21 as a result of lower transportation and delivery costs together with reduced staff expenses following the recent mutual separation scheme (MSS).

• Moving forward, we foresee prospects for its parcel delivery business to remain challenging as it cannot fully capitalise on the ever-growing e-commerce transaction volume amid lower parcel volume from major e-commerce players.

• Meanwhile, we also gather that its mail operation continues to see a gradual decline in volume in tandem with the ongoing global trend towards online and virtual communications. However, the logistics and aviation segments are expected to achieve commendable recovery supported by the normalisation of operations amid the reopening of international borders.

• Potential re-rating factors include:
  (i) higher-than-expected reduction in operating expenses as a result of various cost-saving initiatives, particularly within the postal segment; and
  (ii) a more robust earnings recovery within the logistics and aviation segments arising from the handling of higher goods tonnage.

• Given that the company is currently trading at an FY23F P/B of 0.6x, which is at parity with its 2-year average P/B, we believe most negatives have already been largely priced in.

Source: AmInvest Research - 29 Jun 2022