News

• POS announced that it has acquired 2 second hand bulk carrier vessels for a total purchase consideration of US$32.9m (RM141.7m).
• To recap, the group was awarded 10-years contract by TNB worth US$194m (RM834.2m) for 2 vessels on 19th July 2016 to transport coal from various countries into Malaysian ports.
• Currently, POS is using chartered vessels from the 3rd party to transport the coal for TNB.
• The purchase of the 2 vessels would be completed by 31st December 2017.

Financial Impact

• Not a surprise to us as the group has been planning to purchase 2 vessels to service the TNB contract.
• The contract would yield high single digit gross margin. Assuming USD/MYR exchange rate of RM4.30/US$, the contract would contribute RM8.3m p.a. to the group on the assumption of 10% gross margin.
• The acquisition of the vessels would enable cost savings for the group compared to the current business model of chartering 3rd party vessels.
• Our earnings forecast is not affected as we have factored in the contribution from the TNB contract. However, the quantum of cost savings from the vessel acquisition is still uncertain at this juncture.
• Purchase consideration would be financed through a mix of borrowings and internal cash flow, which has yet to be determined at this juncture.

Forecast

• Maintain forecast.

Rating

HOLD (↔)

• The group would no doubt be the major beneficiary of e- commerce boom in Malaysia. However, its ytd share price performance has priced in the positive prospects while now it’s time for the group to deliver on its promises. We believe risk reward is not as favourable now given that earnings risks are still high with gestation period costs expected to be significant for its new warehouse in old LCCT and competitive pricing of courier players to compete for the growing market.

Valuation

• TP is maintained at RM4.73 pegged to unchanged 25x FY19 PER.

Source: Hong Leong Investment Bank Research - 14 Aug 2017