Investment Highlights

• We maintain our HOLD call on Pos Malaysia with a higher DCF-based fair value of RM5.27 per share (from RM4.51 per share previously). We increase our FY18-19F net earnings forecasts by 5% to reflect on the expected strong growth from its courier segment, and introduce ur FY20 numbers. Key risks to our call include longer/shorter than expected consolidation period from the acquisition of Pos Aviation and stronger/weaker growth in its courier business.

• Pos Malaysia’s FY17 net profit jumped 33.2% yoy to RM84.1m. This came in within our expectation, making up 95% of our full year forecast, but below consensus at 94%. No dividend was declared, as expected.

• The positive YoY performance in FY17 was driven mainly by strong growth in the courier segment and the consolidation of KL Airport Services Sdn Bhd (now known as Pos Aviation Sdn Bhd), of which the acquisition was completed on 13 Sep 2016.

• In FY17, operating profit from the courier segment jumped 226% YoY to RM181.0m on the back of a 23% YoY increase in revenue to RM684.6m, mainly due to surge in demand from e-commerce business. The logistics segment, made up by Pos Aviation, made its maiden substantial contribution in FY17, registering RM6.5m in operating profit and RM327.6m in revenue, mainly contributed by automotive, distribution and projects logistics inclusive of haulage business and complemented by cargo and ground handling and inflight catering business. The others segment, which consist of printing and insertion, digital certificates and Ar-Rahnu, also registered positive growth, with revenue improving 23.9% YoY to RM97.8m, resulting in an operating profit of RM27.3m, mainly due to Ar-Rahnu business as well as printing and insertion and sales of digital certificates.

• However, postal services recorded a 5.1% YoY drop in revenue to RM779.5m, resulting in an operating loss of RM146.5m in FY17, due to a net drop in traditional mail volume and lower transaction from retail segment from commercial private section for unit trust.

• We expect Pos Malaysia’s future growth to be anchored by the continued growth of e-commerce domestically and regionally. We also expect its concession based business to continue to provide a stable revenue stream, driven by moderate growth in air passenger traffic.

Source: AmInvest Research - 24 May 2017