POS MALAYSIA BERHAD

Takeaways
FY10 result Pos Malaysia Bhd's (POSM) FY11 revenue of RM1.17b made up 107% the estimated RM1.16b, whilst net profit of RM111.5m accounted for about 92% of full year target of RM121.6m. On a yearly basis, full year revenue of RM1.17b was 16% higher compared to RM1.02m recorded last year. Mail revenue increased by 21% to RM731.7m, thanks to the full year impact of tariff hike in FY11, despite been partly offset by a slight decrease in mail volume.

Higher expectation from holding company After DRB-Hicom took over Khazanah's stake in POSM, the holding company has higher expectation on POSM. The management guided that they are looking at double-digit yearly growth for both topline and bottomline.

Drafting on phase 2 of transformation plan The first phase of transformation plan will be ended by end of 2012. The group is working on its phase 2 of transformation plan. Given that mail division generates about 70% of its total revenue, the group is looking at direct mail business to enhance its mail evenue contribution. Direct mail is a way of advertising in which advertiser mail printed advertisements or letters to large groups of consumers. Logistics wise, POSM already has its reach to homes nationwide, and it would be an advantage for the group to explore on this business. Going forward, the group is also planning to reduce its reliance on mail business and to direct itself into the '1-stop solution concept' business model. For its non-mail segment, the group is also looking at ways to capitalise on its existing network to distribute non-mail products. For example, the group is looking at distributing products for ultilevel- marketing companies. POSM is also looking ways to cutoperational cost. The group will work with Edaran Otomobil Nasional Bhd (EON, which is part of DRB-Hicom Group) to lease vehicle. For this year, the group will spend more on its ICT infrastructure investment to facilitate its operation and increase its efficiency.

Fair Value of RM3.06. Management indicates no change in its dividend policy of minimum 35% of distribution. Pos is enjoying a higher revenue stream with the implementation of its new tariff since mid of 2010. Going forward, the group will face challenges on how to grow its revenues from both mail and non-mail segments to keep up with the expectations from new holding company. We suggest a fair value of RM3.06 for POSM, pegging valuation at a PE of 13x, comparable with its close peers ' Singapore Post Ltd listed in Singapore.


Source:Jupiter Securities Research 28 February 2012