Results

• Above Expectation – Reported 3QFY03/15 core net profit of RM45.8m (yoy: +89.3%; qoq: +460.3%) and 9MFY03/15 of RM82.9m (-23.7% yoy), accounted for 94.1% of our and 59.4% of consensus FY03/15 estimates.

Deviations

• Higher than expected EBIT margins for Mail and Courier segments. 2

Dividend

• None.

Highlights

• YoY: Despite revenue increased by RM28.3m or 8.6% yoy to RM348.0m, 3QFY03/15 core EBITDA increased by RM35.9m, indicating lower operational costs, in contrast to previously guided increasing staff costs and transshipment costs.

• QoQ: Similarly, 3QFY03/15 revenue increased by RM11.8m or 3.4% qoq, core EBITDA increased significantly by RM46.0m and core net profit increased by RM37.6m, again indicating significant drop in operational cost qoq (no detailed explanation given).

• YTD: 9MFY03/15 core net profit dropped by 23.7% to RM82.6m.

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

• Maintained existing forecast, pending clarification from Management.

Rating

SELL

Positives

• (1) Plenty of growth opportunities, leveragingon DRB Group and newly acquired Konsortium Logistics; (2) Strong balance sheet; and (3) Potential land conversion.

Negatives

• (1) Huge staff numbers; (2) Highly regulatedindustry; and (3) Fortunes are tied to crude oil price.

Valuation

• Maintained Sell recommendation at this juncture, pending clarification from management on the sudden drop in operational costs.

Source: Hong Leong Investment Bank Research - 18 Feb 2015