- We maintain our HOLD recommendation for Pos Malaysia (Pos) with a lower fair value of RM4.80/share (vs. RM4.90/ share previously), based on our DCF valuation. We have trimmed our estimates to account for compressed margins largely stemming from Mail.
- Pos’ 4QFY15 earnings came in at RM19.9mil, bringing FY15 core net profit to RM127.1mil (-20.1% YoY). This is lower than expected, accounting for only 90% of our estimates and 86% of market estimates. No dividends were declared in FY15.
- FY15 earnings was dragged by the down-trending Mail segment. FY15 revenue for Mail came down by 4.7% YoY and its earnings declined to RM79.5mil (-45% YoY), due to lower mail volumes and absence of the one-off revenue surge of RM11mil arising from GE 2013 in FY14. As a consequence of Pos’ high operating leverage, Mail’s EBIT margins deteriorated to 11% (-3ppts YoY).
- However, the Courier segment’s strong performance mitigated the decline from Mail by registering a profit growth of 17.9% YoY, largely boosted by the growing ecommerce industry. We noted that the Courier segment contributed to 60% of total earnings in FY15 as compared to 41% in FY14.
- We noted some traction from Pos’ efforts to improve its Retail segment, which registered a narrower FY15 loss of RM32.6mil (FY14: -RM41.8mil), due to higher contributions from financial services and insurance commissions.
- Looking ahead, Pos will still undergo its five-year strategic plan to diversify away from post towards its ultimate goal of becoming a regional postal and logistics player.
- Key growth drivers remain:- (1) continuous steady growth of Courier. We noted a risk of escalating costs in Courier in 4Q, whereby its EBIT margins were lower by 19ppts QoQ. However, capex investments to its Courier services with the new integrated parcel centre and parcel lockers in FY16 may help protect margins; and (2) expansion of Mail’s high margin Direct Post business through more product awareness.
- A potential downside is a pending tariff increase for international mail by the Universal Postal Union as a result of Malaysia’s recent rating upgrade to “Developed Country”. This will increase Pos’ costs for international mail delivery and reduce the positive impact currently enjoyed by the Mail segment’s transshipment business. Subsequently, Pos will likely try to negotiate an increase in its local postal tariffs, which if successful, will be favourable to Pos. Local mail contributes to the bulk of its income.
- Pos currently trades at 19x FY16F PE as compared with SingPost’s 24x FY16F PE.
Source: AmeSecurities Research - 25 May 2015
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