Pos’s 1QFY12/20 core net loss of -RM26.8m was below ours and consensus forecasts. The weaker results were mainly due to lower revenue across all segments. Although MCO has surged the courier service (under Postal segment), we believe earnings from the service will not be able to support losses from other operations that were affected by MCO. We expect Pos to register losses in 2QFY12/20 owing to the full brunt of the MCO. We are now projecting Pos to register losses of RM41.8m in FY12/20 and lower profit of RM3.5m in FY12/21. We maintain our HOLD call with a lower TP of RM0.90 (from RM1.06).

Below expectations. 1QFY12/20 core net loss of -RM26.8m was below ours and consensus forecasts (we projected RM3.6m profit for the full year whilst consensus was at RM13.2m profit). The weaker than expected results were mainly due to lower revenue registered across all segments.

EIs in 1QFY12/20. During the quarter, we added back a net +RM22.4m worth of EIs from Pos’s reported net loss of -RM49.2m. Key adjustments were mainly from RM19.5m for net foreign exchange differences and RM2.9m for impairment loss of financial instruments.

QoQ. 1QFY12/20 revenue remained relatively flat (-0.2%) at RM558.5m. Core net loss narrowed to -RM26.8m (from -RM51.8m in 3QFY12/19). Pos has now consolidated its three segments of postal services, courier and international into single segment of postal, making it impossible to compare these three segments. Furthermore, Pos no longer provides EBIT breakdown, instead PBT breakdown is given. So, no comparison can be made. We estimated that the lower loss was mainly attributed improvement in Postal segment due to higher effective postal rate since Feb 2020.

YoY. 1QFY12/20’s revenue declined by 6.1% mainly from lower revenue from Postal segment. Core loss has tapered down to -RM26.8m (from -RM35.6m in 4QFY03/19), mainly due to higher effective postal rate since Feb 2020.

Outlook. Although the MCO has surged the courier service (under Postal segment) through its parcel deliveries, we believe earnings from this segment (accounting for 30-35% of revenue) will not be able to offset the losses from other operations that were halted during the MCO period. These include Pos’s commercial and retail services, coupled with flight restriction that impacted its aviation and international segments. We expect Pos to register continued losses in 2QFY12/20 owing to the full brunt of the MCO. Moreover, due to low entry barriers of e-commerce industry as well as increasing number of logistics players in the market (with 116 players as at Mar 2020), we reckon that their margin will be compressed. Furthermore, the recent tariff hike could further deteriorate the mail volume with business stepping up on cost cutting measures amid recessionary concerns.

Forecast. We are now projecting Pos to register losses of RM41.8m (from profit of RM3.6m in FY12/20) in FY12/20 and lower profit of RM3.5m (from profit of RM22.8m) in FY12/21 to account for lower contribution from international, logistics, aviation and other segment arising from MCO disruption across Pos’s operating segments. FY12/22 projection is introduced.

Maintain HOLD, with a lower TP: RM0.90 (from RM1.06), based on 0.5x FY12/20 BVPS of RM1.80 (at -1.25 S.D. below its 3-year historical P/B average of 1.46x). While the recent tariff hike as well as surge in e-commerce demand during MCO could contribute to Pos’s earnings, this is still expected to remain in the red for the year.

Source: Hong Leong Investment Bank Research - 16 Jun 2020