Results

Below Expectation – Reported 3Q14 core net profit of only RM22.4m, bringing 9M14 to RM106.1m, accounting for 63.8% of our and 61.5% of consensus full-year estimates.

Deviations

Higher than expected operational expenses and tax expenses.

Dividend

None.

Highlights

YoY. Revenue increased by 5.3% to RM329.7m mainly on stronger contribution from Courier and Other segments, while core earnings dropped by 56.8%, due to higher operational expenses and effective tax rates.

QoQ. Similarly, core profits declined by 44.3%, despite revenue improved by 4.1% on higher operational expenses and higher effective tax rate.

YTD. 9M14 pretax profit improved by 7.8% yoy. However, core earnings dropped by 5.5% yoy due to higher effective tax in 9M14 as compared to 9M13 (which include tax writebacks).

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

We have cut our earnings for FY03/14-16 by 9.6 – 16.7%, accounting for higher operational cost (mainly due to expansion) and effective tax rate.

Rating

HOLD

Positives – (1) Plenty of growth opportunities, leveraging on DRB Group and newly acquired Konsortium Logistics; (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

We maintained our HOLD rating with a lower target price of RM5.00 (from RM5.53) based on unchanged 16x FY03/15 P/E, after cutting our forecasted earnings. Despite hidden value in its land bank, we do not expect PosM to realize the value within the near term, due to incoming commercial building oversupply in KL Sentral area.

Source: Hong Leong Investment Bank Research - 20 Feb 2014