PosM’s FY20 core net loss widened to -RM146.4m (from -RM125.0m SPLY) mainly dragged by lower contribution from postal segments, owing to the closure down of main parcel processing centres in Oct-Nov 2020 (Covid outbreak there) and weak aviation segment. We now forecast FY21-22 earnings at RM0.4m and RM16.1m (from RM11.1m and RM26.7m) after imputing weaker postal services and aviation segment moving forward. Downgrade to HOLD from Buy with lower TP of RM0.93 as we turn more cautious on PosM’s outlook.

Below expectation. 4QFY20 core net loss of -RM106.5m (3QFY20: -RM4.9m; 3QFY03/20: -RM51.8m) brought FY20 core net loss to -RM146.4m (from -RM125.0m SPLY). The results were below expectation from our FY20 forecast of -RM27m and consensus at -RM55.3m. The deviation was mainly due to lower contribution from postal segments owing to the temporary closure of main parcel processing centres in Oct-Nov 2020 cause by the Covid-19 outbreak as well as worse-than-expected showing at the aviation segment. During the quarter, we added back a net +RM125.8m worth of EIs (from various non-cash items such as impairment loss of PPE & goodwill, provision loss, etc.).

QoQ. 4QFY20’s revenue decreased by 12.6% mainly due to by lower postal services (-16.4%) and logistics segment (-7.1%); however, this was slightly mitigated by higher aviation segment (+20.5%). Postal segment was impacted tremendously during the quarter owing to the temporary closure of main parcel processing centres in Oct-Nov 2020 (which processes up to 70% of their total parcel volume) due to Covid-19 outbreak at the said facility. Overall, losses widened to -RM106.5m from -RM4.9m.

YoY. 4QFY20’s top line remained flattish +2.7% as the higher logistics segment (+5.0%) and others segment (+14.3%) was offset by the decline in aviation segment (49.6%) and slightly lower contribution from postal segment (2.2%). Logistics segment benefitted from higher demand for shipment services and higher automobile production volume from Proton while others segment was higher 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 widened to -RM106.5m from -RM51.8m SPLY.

YTD. FY20’s revenue was flattish +2.4% as the higher postal (+8.5%), logistics (+2.9%) and others segment (+15.4%); were offset by lower aviation segment (- 39.3%) due to impact of Covid-19 and closed borders. PosM’s FY20 core net loss widened to -RM146.4m from -RM125.0m SPLY, owing to the higher zakat and tax.

Outlook. The results disappointment prompts us to turn more cautious on PosM’s outlook. PosM has been in the red for the past 10 consecutive quarters and this 4Q20 marked its widest loss ever even after stripping off EIs. Although management is confident that progress of its transformation program is improving and should be able to pick up and return to profitability path in FY21, we believe that it will go through a gestation period alongside near term headwinds that may remain.

Forecast. We now forecast FY21-22 earnings at RM0.4m (breakeven levels) and RM16.1m (from RM11.1m and RM26.7m previously) after imputing weaker postal services and aviation segment moving forward.

Downgrade to HOLD, with a lower TP: RM0.93 (from RM1.18), based on a P/B multiple of 0.65x on FY21 BVPS of RM1.43 (at -1SD below its 3Y mean of 1.17x) as the impairment recognised by company has lowered its BVPS.

Source: Hong Leong Investment Bank Research - 23 Feb 2021