PosM reported 1QFY21 core net loss of -RM41.9m (4QFY20: -RM106.5m; 1Q20: - RM27.4m) that was below expectation mainly due to poorer showing of both postal and aviation segment. Overall, PosM chalked in wider losses YoY despite the higher revenue due to compressed margin from postal services as well as on-going drag from aviation segment. Therefore, we now forecast FY21-22 earnings at -RM106.6m and -RM31.9m (from -RM70.7m and +RM16.1m previously) after imputing weaker postal services margin and lower aviation segment contribution. Maintain HOLD with slightly lower TP of RM0.86 (from RM0.87).

Below expectation. PosM reported 1QFY21 core net loss of -RM41.9m (4QFY20: - RM106.5m; 1Q20: -RM27.4m) which was below expectation from our FY21 forecast of -RM70.6m and consensus at +RM2.6m. The deviation was mainly due to worse than-expected showing at the aviation segment given MCO2.0 as well as lower margin from postal services. During the quarter, we added back a net +RM4.9m worth of EIs (mostly from impairment loss of receivables).

QoQ. 1Q21’s revenue increased by 9.3% buoyed mainly by the better performance in postal services (+7.4%) and logistics segment (22.3%). As PosM saw its results being hampered by an outbreak (closure of its main processing centre during 4Q20), the company were able to recapture loss ground in 1Q21, as shown by their increased in revenue as well as the narrowed LBT to -RM41.1m (from -RM105.9m). In terms of PBT/LBT, it is worth noting that logistics and others segment were profitable during the quarter as compared to losses in previous quarter. Overall, core LATMI has tapered down by more than half to -RM41.9m from -RM106.5m.

YoY. Top line rose by 6.6% driven by the higher postal segment (+5.0%) following an increase in parcel volume by 18% as well as higher logistics segment (+34.1%) mainly from freight management business and automotive business (increasing local automotive production volume and commencement of a new warehouse). Nonetheless, it was offset by poorer showing in aviation segment (-31.2%) on longer lock-down period; and others segment revenue (-12.9%) dragged by lower revenue from both printing and insertion and digital certificates businesses. With regards to PBT/LBT, postal segment saw a wider LBT despite staging higher revenue and volumes, due to lower margin product mix from the contract customer. Logistics segment managed to turnaround on higher revenue and margins. Overall, core losses widened to -RM41.9m vs –RM27.4m SPLY, mainly due deteriorated postal (after accounting for EIs) and aviation segment.

Outlook. As the spike in Covid-19 cases and ongoing stringent MCO measures hamper economic recovery, we remain cautious on the challenging operational performance for PosM especially on its aviation segment which has a tepid outlook in the near term. Nonetheless, a stricter stay-at-home order may spur courier demand for PosM although its profitability margin remains uncertain due to the stiff competition in the industry.

Forecast. We now forecast FY21-22 earnings at -RM106.6m and -RM31.9m (from - RM70.7m and +RM16.1m previously) after imputing weaker postal services margin and lower aviation segment contribution. Introduced FY23 forecast at RM4.7m.

Maintain HOLD, with a marginally lower TP: RM0.86 (from RM0.87), based on a P/B multiple of 0.65x on FY21 BVPS of RM1.32 (at -1SD below its 3Y mean of 1.17x) as near term outlook remains challenging especially for aviation segment.

Source: Hong Leong Investment Bank Research - 27 May 2021