PosM reported 9MFY21 core net loss of -RM148.3m (9MFY20: -RM39.9m), which was within expectations. Overall, PosM chalked in wider losses YoY/YTD following the decrease in mail and parcel volume handled (especially from contract customers). However, 3QFY21 QoQ losses were narrower partially due to their cost rationalisation effort as part of the turnaround plan. We gathered that the new management team are targeting to breakeven at PBT level by 1HFY22 through reduction of cost of production (>10%) and reduction of indirect cost (>25%). However, we believe it is still too early to be optimistic as PosM’s operating environment continues to be challenging, being hampered by the fast shrinking snail mail volume as well as the fierce competition in last mile delivery industry. Maintain our forecast and HOLD recommendation with an unchanged TP of RM0.76 based on a P/B multiple of 0.65x on FY21 BVPS of RM1.18 (at -1SD below its 3Y mean of 1.17x).

Within expectation. PosM reported 3QFY21 core net loss of -RM41.2m (2QFY21:- RM65.3m; 3QFY20: -RM4.9m), bringing 9MFY21’s core net loss to -RM148.3m (9MFY20: -RM39.9m), which was within expectations vs our FY21 loss forecast of -RM223.2m and consensus -RM199.5m. We are expecting seasonally weaker 4QFY21. We added back a net +RM64.2m worth of EIs (mostly from impairment loss of PPE and receivables) from 9MFY21 reported net loss of -RM212.5m.

QoQ. Total revenue remained flattish (+0.4%) contributed by higher postal segment (+6.4%); however was offset by lower logistics (-16.4%) and aviation segment (- 11.6%). In term of PBT/LBT, postal segment saw narrower losses thanks to higher revenue as mentioned above as well as partly due to cost optimisation. LBT for aviation segment also saw a narrower losses despite registering lower revenue thanks again to cost rationalisation effort as part of their turnaround plan (see Figure #4 and #5). Hence, core LATMI narrowed to -RM41.2m vs -RM65.3m.

YoY/YTD. Top line declined by -13.9% YoY/-6.8% YTD, dragged by the lower postal segment (-4.8% YoY/-12.5% YTD) following the decrease in mail and parcel volume handled especially from contract customers. Nonetheless, it was partially offset by better showing in aviation (+63.6% YoY/+21.3% YTD) owing from increased contribution from higher cargo tonnage handled and increased number of flights. With regards to PBT/LBT, logistics segment managed to turnaround on higher revenue and margins while aviation segment showed narrower losses. Nevertheless, postal segment saw wider LBT in tandem with lower revenue which in turn widened the core loss.

Outlook. During our meeting with management recently, we gathered that the new management team is targeting to breakeven at PBT level by 1HFY22 through reduction of cost of production (>10%) and reduction of indirect cost (>25%). We reckon this new team could be more “action executing” on their targets, not just eloquent talks on transformation. The improved performance QoQ mentioned above is a good preliminary execution sign. However, we believe it is still too early to be optimistic as PosM’s operating environment continues to be challenging, being hampered by the fast shrinking snail mail volume as well as the fierce competition in last mile delivery industry.

Forecast. Maintain our forecast for now as we wait for more conclusive improvement in results.

Maintain HOLD, with an unchanged TP: RM0.76, based on a P/B multiple of 0.65x on FY21 BVPS of RM1.18 (at -1SD below its 3Y mean of 1.17x) as near term outlook remains challenging. However, with the share price at a 17-year low, we believe the negatives have been largely priced in.

Source: Hong Leong Investment Bank Research - 17 Nov 2021