Results

1QFY03/14 core net profit of RM43.6m (yoy: +40.9%; qoq: +37.7%) accounted for 26.2% of our and 24.9% of consensus full-year estimates, within expectations.

Deviations

None.

Dividend -

Highlights

YoY. Despite revenue increasing by 14.3% to RM355.8m, 1QFY03/14 core net profit rose by 40.9% to RM43.6m mainly due to strong volumes at all business segments (with the exception of retail division), partly boosted by general elections, which in turn resulted in better economies of scale, as operating cost only increased by +10.8% from salary increments, higher transportation cost, higher raw materials and consumables etc.

QoQ. 1QFY03/14 core net profit rose by 37.7%, outpacing revenue growth of 3.3%. This is due mainly to higher topline especially on other divisions (comprising sales of digital certificates, printing & insertion business), which in turn resulted in better economies of scale (hence margin expansion).

Risks

• Inability to raise postal tariff
• Skyrocketing crude oil price
• New services/products fail to mitigate declining mail volume
• Sharper-than-expected decline in mail volume.

Forecasts

Unchanged.

Rating

HOLD

Positives – 1) Plenty of growth opportunities; 2) Strong balance sheet; 3) Strong earnings growth; and 4) Potential land conversion.

Negatives – 1) Huge staff numbers; 2) Highly regulated industry; and 3) Fortunes are tied to crude oil price.

Valuation

Maintained Hold with unchanged TP of RM4.65 based on 15x FY03/14 P/E (circa 10% discounts to Singapore Post’s 16.8x).

Source: Hong Leong Investment Bank Research- 19 Aug 2013