Results

Above Expectation – Reported core net profit of RM52.3m and RM159.4m for 4Q14 and FY14 respectively, vs. HLIB’s RM139m and consensus RM153m.

Deviations 

Margin recovery from mail segment in 4Q14.

Dividend

None.

Highlights

YoY. Revenue increased by 23.3% to RM424.4m mainly on stronger contribution across all segments, while core earnings increased by 65.0%, on improved margins from mail and courier segments (economy of scale) and lower losses from retail segment (Ar Rahnu business maturing) as well as lower effective tax expense.

QoQ. Core profits improved by 124.2% (from low base in 3Q14), on improved margins and lower effective tax rate.

YTD. FY14 pretax profit improved by 16.4% yoy. However, core earnings improved by 10.4% yoy due to higher effective tax in FY14 as compared to FY13 (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

Unchanged, pending more updates from Management.

Rating

BUY

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

In view of share price retracement, we upgraded our recommendation to BUY with an unchanged target price of RM5.00 based on unchanged 16x FY03/15 P/E.

Source: Hong Leong Investment Bank Research - 23 May 2014