Pos’s 3QFY12/19 core net loss of RM51.8m brought FY12/19 core net loss to RM89.4m which was below ours and consensus forecasts. The weaker than expected results were mainly due to lower revenue registered from postal services, courier segments and aviation as well as widened loss from international segment. While the recent tariff hike should aid Pos’ turnaround, this may be dampened by a possible wage hike and disruption from Covid -19 to the e-commerce industry impacting its courier division. Forecast, HOLD and RM1.55 TP unchanged pending the upcoming analyst briefing, but we cite downside possibility.

Below expectations. 3QFY12/19 core net loss of -RM51.8m brought FY12/19 (9 months reporting due to change in financial year) core net loss to -RM89.4m which was below ours and consensus forecasts (we projected -RM54.5m loss whilst consensus was at -RM61m loss). The weaker than expected results were mainly due to lower revenue registered from postal services (decline in traditional mail volume largely due to electronic substitution), courier segments (malware attack in Oct 2019 and overall decline in volume) and aviation segment (lower tonnage of cargo handled) as well as widened loss from international segment. No dividend was declared.

EIs in FY12/19. During the year, we added back a net +RM126.2m worth of EIs from Pos’s reported net loss of -RM215.6m. Key adjustments were mainly from +RM93.9m for impairment loss on goodwill and +RM28.6m for provision for redelivery of air-craft.

QoQ. 3QFY12/19 revenue remained relatively flat (+1.7%) at RM559.6m. However, core net loss deteriorated to -RM51.8m (from -RM28m) mainly due lower EBIT contribution from postal services and EBIT loss from courier and logistics segment.

YoY. 3QFY12/19’s revenue declined by 4.4% mainly from lower revenue from postal services, courier and international segment. Core loss widened to -RM51.8m (from -RM13.7m) attributable to lower EBIT contribution from postal services and EBIT loss from courier and logistics segment.

YTD. FY12/19 core net loss of -RM89.4m was mainly due to decline in contribution from courier, international segment and logistics as witnessed by the drop in reported EBIT largely attributed to higher cost of sales and operating expenses from these segments. Additionally, other expenses have surged to RM123.2m (from RM19.1m) due to impairment loss on goodwill and for provision for redelivery of air-craft.

Outlook. We expect better earnings in FY12/20 for Pos from the contribution of postage hike (effective 1 Feb 2020). Pos’s outlook going forward remains generally challenging due to continuing contraction in conventional mail volume as business enterprises are increasingly communicating with their customers via electronic and digital channels, foregoing mail-based communications. For courier segment, although being the largest courier services company in Malaysia, we still expect the weak results to continue moving forward due to stiff competition coupled with impact from the Covid-19 outbreak.

Forecast. Unchanged pending its analyst’s briefing next week. There could be downside risk to our estimates stemming from (i) possibility of wage hike following suit from the tariff hike and (ii) Covid-19 disruption to the e-commerce (online shopping) industry impacting its courier segment.

Source: Hong Leong Investment Bank Research - 26 Feb 2020