PosM’s 3QFY20 core net loss of -RM4.9m has tapered down and brought 9MFY12/20 core net loss to -RM39.9m. We deem this to be slightly below expectation as we were expecting a breakeven quarter for 3Q and a profitable quarter in 4Q. Overall, the improved performance was contributed by higher courier volume, increase in tariff hike, higher business contribution from its logistics segment as well as higher other segments. We expect a better 4Q owing to better contribution from these segments. We revised our FY20 loss to -RM27m from a loss of -RM13.1m to reflect the slightly below expectation results. Maintain our FY21-22 earnings as we believe PosM remains on track to a profitable trajectory. Maintain BUY, with a slightly lower TP: RM1.18 (from RM1.20).

Slightly below. 3QFY20 core net loss of -RM4.9m (2QFY20: -RM8.2m; 2QFY03/20: -RM28m) brought 9MFY20 core net loss to -RM39.9m (from -RM73.3m SPLY). We deemed this to be slightly below expectation as we were perhaps a bit optimistic to expect a breakeven quarter for this period and a profitable quarter in 4QFY20 to narrow the losses to our projected loss of -RM13.1m. The deviation was due to lower contribution from other segments and slightly lower contribution from postal segment. During the quarter, we added back a net +RM2.5m worth of EIs.

QoQ. 3QFY20’s revenue increased slightly by 2.8% contributed by higher logistics segment (+33.4%) from the increased demand for automotive logistics services; however this was slightly offset by the decline in others segment (-8.1%) from lower digital certificates and ArRahnu businesses. Postal services and aviation segment remained flat at -0.6% and -0.4% respectively. Overall, losses narrowed to -RM4.9m from -RM8.2m.

YoY. 3QFY20’s top line rose by 13.3% mainly from higher postal segment (+17.0%), and others segment (+58.1%). Postal segment was higher due to the stronger demand from e-commerce and the postage rates revision effective 1 Feb 2020 while other segment was due to higher digital certificates and ArRahnu businesses. Nevertheless, its aviation segment decreased by 41.6% due to lower ground handling and in-flight catering pursuant to flight cancellations in the wake of Covid-19 where international borders were mostly closed. Sequentially, PosM’s core net loss has tapered down to -RM4.9m from -RM28.0m SPLY.

YTD. 9MFY20’s revenue was higher by 4.1% mainly from higher postal (+4.5%), logistics (+2.1%) and others segment (+15.8%); however, it was offset by aviation segment (-35.4%) due to impact of Covid-19 and closed borders. PosM’s 9MFY20 core net loss has narrowed to -RM39.9m from -RM73.3m SPLY, owing to the improved margins of Postal segment following the rate hike and improved courier volume.

Outlook. We reckon PosM will do better in 4Q contributed from their postal and logistics segment. The postal segment will benefit from higher courier volume from the increase in online shopping as CMCO was reinstated on October 2020 as well as 11.11 and year-end online sales. We also expect a better contribution from logistic segments driven by the increased demand for automotive logistics services from the recent launch of a new car model from a local car manufacturer as well as automotive tax holiday stimulus.

Forecast. We revised our FY20 loss to -RM27m from a loss of -RM13.1m to reflect the slightly below expectation results. Maintain our FY21-22 earnings as we believe PosM remains on track to a profitable trajectory.

Maintain BUY, with a slightly lower TP: RM1.18 (from RM1.20), based on a P/B multiple of 0.65x on FY20 BVPS of RM1.82 (at -1SD below its 3Y mean of 1.17x) in anticipation of a recovery ahead. We believe the negatives have been priced in for PosM. Furthermore, the recent tariff hike as well as surge in e-commerce demand in the “new normal” could contribute to PosM’s earnings, coupled with spill over positive effect from the automotive industry to their logistics sectors.

Source: Hong Leong Investment Bank Research - 25 Nov 2020