Pos’ FY18 core earnings of RM59.2m (-6% YoY) were below our expectation and consensus, coming in at 76% and 77% respectively. This was due to higher than expected staff costs and a more intense competition from the Postal, Courier and Logistics segments. Pos will continue to be dragged by its high fixed cost structure, sunset conventional postal services and stiff competition in its courier division in the upcoming year. We maintain HOLD with an unchanged TP of RM3.61 pending the upcoming briefing on 30 May 2018.

Below expectations. 4QFY18 core earnings came in at RM15.2m, bringing FY18 core earnings to RM59.2. The results were below expectations, coming in at 75.8% of HLIB’s forecast and 76.6% of consensus. The weaker than expected results was mainly due to higher than expected staff costs and a more intense competition from the Postal, Courier and Logistics segments. No dividend was declared.

YoY. Core earnings came in at RM15.2m from a core net loss of RM2.5m due to: (i) lower effective tax rate from a tax incentive granted; (ii) improved cost management; and (iii) higher contributions from the Logistics and Aviation segments.

QoQ. Core earnings increased to RM15.2m from RM2.7m mainly due to: (i) a tax incentive granted; and (ii) a large increase in Other Income (categorised as Investment Income after removing exceptional items), which we are pending clarification from management in the upcoming briefing on 30 May 2018.

YTD. Core earnings decreased by 6.1% to RM59.2m from RM63.1m mainly due to: (i) higher growth in staff costs; (ii) higher finance costs; (iii) lower contributions from the Courier segment due to stiff pricing competition; and (iv) lower Postal and International volumes. These were however partially offset by a lower effective tax rate from a tax incentive granted.

Outlook. Pos will continue to be dragged by its high fixed cost structure, sunset conventional postal services and stiff competition in their courier division against a backdrop of the e-commerce boom. Various initiatives have been implemented by management to improve its operational efficiency, which we expect to be more evident in the longer term.

Forecast. We cut earnings forecasts by 38.9% for FY19 and 43% for FY20 as we adjust for: (i) lower EBIT margin moving forward amidst intense pricing competition in the International and Courier segment; and (ii) lower Postal volume.

Maintain HOLD, unchanged TP: RM3.61 pegged to an unchanged 25x FY19 P/E pending the upcoming Analyst Briefing on 30 May 2018.

Source: Hong Leong Investment Bank Research - 30 May 2018