POS (TP RM3.52? BUY) Initiating Coverage: Posting a Right Price


The announcement of a postal tariff hike and pay review for postmen came earlier than we anticipated. While the tariff hike may have a negative impact arising from a potential 11% decline in volume in FY10, we see yields on mail items ultimately jumping 80%, thus broadening its total revenue and bottom-line by 38.5% and 174% respectively in 2011 (against FY09 numbers), as the impact of the 20% increase in postmen?s salary on the bottom-line appears minimal. Despite the rally in its share price of late, we think there is still a 23% upside on the stock based on our TP of RM3.52, which we have pegged to 12M rolling earnings and the company?s long-term historical average PE multiple of 14x. We feel that this is an opportune time to initiate coverage on Pos Malaysia with a BUY call.