Results

• Below expectations – Reported 3QFY18 core net profit at RM5.0m and 9MFY18 at RM52.3m, accounting for 49.2% of HLIB expectation and 39.5% of consensus.

Deviations

• Weaker than expected courier and logistics margins.

Dividend

• None.

Highlights

• YoY: Core PATAMI plunged 79.4% due to: (i) lower group revenue due to intensified competitions (postal & international) and lower rates pressures (courier & international); and (ii) higher growth in cost of sales mainly from increased staff cost, rental and communication cost to support the operations.

• QoQ: Core PATAMI declined 41.6% to RM5.0m from RM8.5m mainly due to weaker courier earnings (despite the higher revenue) on increasing costs structure and stiff competitions as well as higher group effective tax expense.

• 9MFY18: Core PATAMI declined 19.5% mainly dragged by: (i) postal on lower volume and higher cost structure; (ii) courier on stiff competition and higher cost; and (iii) international on stiff competition and lower volume.

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

• Its e-fulfilment hub in old LCCT has been completed. 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

• Unchanged pending analyst briefing later today.

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 unchanged at RM4.73 pegged to unchanged 25x FY19 PER.

Source: Hong Leong Investment Bank Research - 27 Feb 2018