- We maintain our HOLD rating on Pos Malaysia (Pos) with a lower fair value of RM4.90/share, based on our sum-of-parts valuations. This follows a 10%-18% cut in our FY15F-FY17F earnings.

- Pos’ 3QFY15 earnings came in at RM46mil, bringing total net profit to RM107mil for 9MFY15. This came in below our estimates at 68% of FY15F earnings, but within consensus at 77%.

- Overall, the group achieved higher 9MFY15 operating profits by 4% YoY. Its earnings continue to be weighed down by its mail segment, which saw a decline of 35% in operating profits. This was mainly due to lower mail volume from the prepaid and ordinary mail segments, which accounted for ~86% of total mail volume, as FY14 saw volume contributions from the 2013 general election.

- However, this was mitigated by the strong and consistent performance of its courier segment, which registered a revenue and operating profit growth of 24% and 36%, respectively. This was the result of the group’s ability to capitalise on the growing e-commerce market.

- Similarly, the retail segment’s operating losses reduced by more than 50% following increased contributions from insurance products and its Ar-Rahnu services. The group had also earlier recognised an outstanding postal order exceeding three years amounting to RM26mil as income.

- POS is currently in the second year of its five-year strategic plan. The strategic plan sets out to diversify its business away from postal by expanding its supply chain and digital business. It ultimately intends to establish itself as a regional postal and logistic player.

- In the near term, we continue to expect the courier segment to be the key earnings driver for POS, as it captures a considerable market share in high yielding businesses, especially cross border e-commerce transactions that is gaining traction.

- However, in line with the management’s strategy to diversify its business away from traditional post, we anticipate growth in its other businesses such as Ar- Rahnu and logistics services, which would contribute more meaningfully to earnings in the longer term.

- The stock currently trades at an FY16F PE of 16x, against its historical average of 15x.

Source: AmeSecurities