Results

In line with Expectation – Reported 4Q13 core net profit of RM31.5m and FY13 of RM149.3m, which is 100.7% of HLIB’s forecast and 95.5% of consensus.

Highlights

YoY. Revenue increased by 11.8% to RM344.5m mainly on stronger contribution from Mail and Courier, while core earnings increased by 8.3%, on the back of substantial margin improvement in Mail segment while Courier’s contribution dropped due to transfer cost with Mail segment.

QoQ. Core profits dropped by 39.1%, mainly due to an one-off tax write-back in 3Q13 related to losses incurred during 2006 restructuring.

YTD. FY13 core net profit rose by 41.7% to RM149.3m, due to higher revenue and improved margins from Mail and Courier segments, as well as tax write-backs during the year (3Q13).

Risks

(1) Inability to raise postal tariff; (2) High crude oil price; (3) New services/products fail to mitigate declining mail volume; and (4) Sharper-than-expected decline in mail volume.

Forecasts

Unchanged

Rating

HOLD

• Positives –
  • Plenty of growth opportunities;
  • Strong balance sheet;
  • Strong earnings growth; and
  • Potential land conversion.
• Negatives –
  • Huge staff numbers;
  • Highly regulated industry;
  • Fortunes are tied to crude oil price.

Valuation

We downgraded Pos to Hold with higher Target Price of RM4.65 (From RM3.85) based on 15x FY14 P/E (2x discounts to Singapore Post’s 17x) vs. 13x previously in view of the improved investors’ sentiment and higher valuation of Singapore Post. We believe the market has already priced in the potential special dividend payout of RM317m Section 108 tax credit due to expiry by end 2013.

Source: Hong Leong Investment Bank Research - 21 May 2013