For FY21, management is expecting postal and logistics segment to breakeven while expecting profits from others segment to offset the expected losses from aviation segment, on the back of 20% growth target in courier as well as reopening of more economic activities. However, we remain cautious on PosM’s postal segment as MCO2.0 is less restrictive vs MCO1.0 and hence courier may not be able to achieve the volume as what they saw in 2Q20-3Q20 previously. Furthermore, aviation segment will continue to be hampered by Covid-19 headwinds as recovery was slower than expected. In turn, we are now forecasting FY21 to register losses of -RM70.7m (from RM0.4m) but maintain our FY22 forecast after imputing weaker postal services and aviation segment. Maintain HOLD, with a lower TP: RM0.87, based on a P/B multiple of 0.65x on FY21 BVPS of RM1.34.

Following Are the Key Takeaways From PosM’s Virtual Analyst Briefing Yesterday:

Postal segment. Management clarified that 4Q20 revenue was affected due to outbreak in their processing centre that impacted their ability to meet courier service level agreement (SLA), thus resulting to loss in market share. Additionally, courier transportation cost in 4Q20 was higher by 20% QoQ as well as additional cost of c.RM10m was incurred due to the disruption in processing centre from the outbreak. For FY21, management is targeting 20% courier growth as their operation has normalised in Dec 2020 as well as promising growth in e-commerce industry. With regards to mail volume, FY20 saw a decline of 24%; however, revenue increased by c.RM150m (+23.6% YoY) driven by the tariff hike effective in Feb 2020. For FY21, management is looking at mail volume to drop by 15% as business enterprises are increasingly communicating with their customers via electronic and digital channels.

Other business segments. For logistics segment, management expects it to make a slight profit on the back of its higher haulage business contribution from local automotive production. However, for aviation segment, management foresees that it will not be breaking even anytime soon as the segment has been severely impacted by Covid-19 and closed borders. Meanwhile for others segment (that includes Ar Rahnu, digital certificates, etc), management expects this to be stable and be able to register profitability along with logistic segment to offset the losses from aviation segment.

Outlook. Overall, management expects postal segment to breakeven in FY21 as well as breaking even for the entire Group. However, we believe such targets could prove an uphill task; its 20% growth in courier seems to be a relatively tall target considering that FY20 was an abnormal year driven by extraordinary volume surge due to Covid- 19 lockdowns. Nonetheless we do believe FY21 courier volume will be higher than pre-pandemic levels (driven by the new normal of shopping trends). However, we reckon that the magnitude will not be as high as what we saw in 2Q20-3Q20 trends as mobility under MCO2.0 was less restrictive vs MCO1.0.

Forecast. We now forecast FY21 to register losses of -RM70.7m (from RM0.4m) and maintain our FY22 forecast at RM16.1m after imputing weaker postal services and aviation segment.

Maintain HOLD, with a lower TP: RM0.87 (from RM0.93), based on a P/B multiple of 0.65x on FY21 BVPS of RM1.34 (at -1SD below its 3Y mean of 1.17x) as we make changes to our earnings base. 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.

Source: Hong Leong Investment Bank Research - 9 Mar 2021