Results

• Within expectations –1QFY03/18 core net profit came in at RM38.7m, within expectations at 30.1% of HLIB and 28.3% of street estimates.

Deviations

• We deem the results in line as we expect 1QFY18 to be the strongest quarter due to seasonality.

Dividend

• None.

Highlights

• YoY: In 1QFY18, core net profit surged 22.0% to RM38.7m primarily due (i) strong courier division performance underpinned by higher e-commerce volume growth and margins (ii) maiden profit contribution from logistics division (post KLAS acquisition in 3QFY17), and (iii) higher other income driven by stronger Al-Rahnu sales.
• QoQ: Core profit was posted against a marginal loss of RM0.04m in 4QFY17 thanks to (i) narrower losses from Postal division due to lower costs and seasonal factors (ii) recovery in profitability of the logistics division due to recovery in volume and (iii) lower interest cost.
• Comment: Pos will continue to be affected by the weakness in convention mail volume and weak retail division. Revenue and cost structure of the group is expected to remain erratic and volatile
• Nevertheless, growth will continue to be strong for its e- commerce related courier business while its logistics division will only benefit from the boom in the longer term.
• Recently announced MOC with Lazada has opened up potential for the group to piggyback on e-commerce growth in Malaysia in conjunction with the launching of Digital Free Trade Zone (DFTZ).

Risks

• New services/products fail to mitigate declining mail volume.

Forecasts

• Maintained.

Rating

HOLD ↔

• E-commerce would anchor its long term growth as it would be the primary beneficiary of the boom. Current growth can only be seen in its courier division and we expect its logistics division to benefit as well in the longer run. Meanwhile, drag from postal division remains a concern.

Valuation

• Maintain HOLD with TP unchanged at RM4.73 based on 25x target FY19 PER.

Source: Hong Leong Investment Bank Research - 18 Aug 2017