Results

• Below Expectation – Reported 4QFY03/15 core net profit of RM16.0m (yoy: -68.0%; qoq: -65.0%) and FY03/15 of RM99.0m (-37.7% yoy), accounted for 81.0% of our and 67.4% of consensus FY03/15 estimates.

Deviations

• Lower than expected EBIT margins for overall group business. 2

Dividend

• None.

Highlights

• YoY: 4QFY03/15 core EBITDA dropped by 44.5% to RM47.7m due to lower group revenue of 6.8% and higher operational cost related to transshipments, staff costs and depreciation expenses.

• QoQ: Similarly, core EBITDA declined significantly by 44.0% to RM47.7m and core net profit reduced by 65% to RM16.0m. Note that 3QFY15 result was exceptionally strong at RM45.8m (after weak result in 1QFY15: RM29.0m and 2QFY15: RM8.2m) due to significantly lower recognized operational cost with no explanation given. Management was pointing to the different timing of cost recognitions during the year.

• YTD: Despite higher revenue, FY03/15 core net profit dropped by 37.7% to RM99.0m (excluding RM25.5m gain from expiry of order post in 2QFY15) due to lower mail volumes and higher operational costs.

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

• Cut FY16 and FY17 earnings by 15.2% and 10.4% respectively in view of the higher operational costs. Introduced FY18 earnings at RM166m.

Rating

SELL

Positives

• (1) Plenty of growth opportunities, leveraging on DRB Group and newly acquired Konsortium Logistics; and (2) Strong balance sheet.

Negatives

• (1) Huge staff numbers; and (2) Highly regulated industry.

Valuation

• We maintained Sell on PosM with lower Target Price of RM4.30 (from RM4.80), after we rolled forward our valuation into FY03/17, with lowered 16x P/E (from 18x), given the disappointing results, initiatives setbacks and lack of corporate disclosure.

Source: Hong Leong Investment Bank Research - 25 May 2015