Results

• Below expectations – Reported 2QFY03/18 core net profit at RM8.5m and 1HFY03/17 at RM47.4m, accounting for 36.7% of HLIB expectation and 35.2% of consensus.

Deviations

• Weaker than expected courier and logistics margins.

Dividend

• None.

Highlights

• YoY: Core PATAMI declined 4.4% due to: (i) weaker courier EBIT dragged by lower margins caused by intensified competition; and (ii) weaker international business contribution due to pricing pressure.

• QoQ: 2Q18 core PATAMI plunged 78% reflecting: (i) higher Postal losses due by seasonally lower volume; and (ii) weaker Others segmental EBIT due to weaker business volume.

• 1H18: Core PATAMI rose 16.4% mainly underpinned by: (i) stronger courier contribution due to e-commerce; (ii) maiden contribution by logistics and aviation division; and (iii) higher others segment contribution due higher Al Rahnu revenue.

• Outlook: Growth is expected to remain favorable for its e commerce related courier business. However, its logistics division would only benefit from the boom in the longer term.

• Its e-fulfilment hub in old LCCT has been completed and contribution is expected by 3QFY18. FY19 earnings growth would be anchored by this new hub which piggybacks on Lazada & Alibaba’s e-commerce volume growth.

Risks

• New services/products fail to mitigate declining mail volume; and

• Sharper-than-expected decline in mail volume.

• Staff union risks

Forecasts

• Cut FY18 forecast by 18% to account for weaker courier and logistics margins.

Rating

HOLD ↔

• While we are still positive on its long term prospects for e commerce driven courier business, we opine that share price has more than priced in the near term earnings prospects (39.2x implied FY18 PER).

Valuation

• Maintain HOLD with TP maintained at RM4.73 pegged to unchanged 25x FY19 PER.

Source: Hong Leong Investment Bank Research - 29 Nov 2017