Results

In-Line – Reported 2Q14 core net profit of RM40.2m, bringing 1H14 to RM83.8m, accounting for 50.4% of our and 48.6% of consensus full-year estimates.

Deviations

None.

Dividend

Announced interim gross dividend of 8.0 sen less 25% tax or net dividend of 6.0 sen.

Highlights

YoY. Revenue increased by 5.4% to RM316.8m mainly on stronger contribution from Courier segment, while core earnings increased by 35.5%, on the back of increased volumes with controlled operating cost (margin improved on better economy of scales).

QoQ. Core profits declined by 7.5%, despite revenue declined 11.0% on lower volumes, mainly due to lower effective tax rate qoq.

YTD. 6M14 core net profit rose by 38.3% to RM83.8m, as POS enjoyed better economy of scales from higher sales volume in Mail, Courier and Others segments, as well as lower losses from Retail segment (higher proportionate contribution from Ar-Rahnu) and lower effective tax rate.

Risks

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

Forecasts

Unchanged.

Rating

HOLD

Positives – (1) Limited downside to its current share price; (2) Plenty of growth opportunities; (3) Strong balance sheet; (4) Strong earnings growth; and (5) Potential land conversion.

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

Valuation

We maintained Hold, with a higher target price of RM5.53 (from RM4.65) based on 15x FY03/15 P/E, as we roll forward our valuation. Despite hidden value in the land bank, we do not expect PosM to realize the value within the near term, due to the incoming commercial building oversupply in KL Sentral area.

Source: Hong Leong Investment Bank Research - 25 Nov 2013