PosM reported FY21 core net loss of -RM179.1m (FY20: -RM144.8m), which was above expectations. Overall, PosM chalked in wider losses YTD following the decrease in mail and parcel volume handled (especially from contract customers). However, 4QFY21 QoQ losses were narrower partially due to their cost rationalisation effort as part of the turnaround plan. 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).

Above expectations. PosM reported 4QFY21 core net loss of -RM30.8m (3QFY21: -RM41.2m; 4QFY20: -RM104.9m), bringing FY21’s core net loss to -RM179.1m (FY20: -RM144.8m), which was above expectations vs our FY21 loss forecast of -RM223.2m and consensus -RM202.75m. We added back a net RM156.6m worth of EIs (mostly from impairment loss of PPE and receivables as well as mutual separation scheme in 4QFY21) from FY21 reported net loss of -RM335.7m.

QoQ/YoY. Total revenue remained flattish (-1.4% QoQ; -2.9% YoY): contributed by higher logistics (+20% QoQ; +4.5% YoY), higher aviation (+25% QoQ; +69.8% YoY) as well as higher others segment (+11.5% QoQ; +9.5% YoY); however this was offset by lower postal segment (-9.9% QoQ; -12.3% YoY). In turn, core losses narrowed to -RM30.8m (from -RM41.2m in 3QFY21 and -RM104.9m in 4QFY20) thanks to ongoing cost optimisation.

YTD. Top line declined by -5.9% YoY, dragged by the lower postal segment (-12.5% YoY) following the decrease in mail and parcel volume handled especially from contract customers; as well as lower others segment (-5.3% YoY). Nonetheless, they were partially offset by better showing in (i) aviation segment (+32.5% YoY) owing to increased contribution from higher cargo tonnage handled and increased number of flights and (ii) higher logistics segment (+10.2% YoY) from higher freight management business and automotive business. With regards to PBT/LBT, logistics segment managed to turnaround on higher revenue and margins while aviation segment showed narrower losses and postal segment saw wider LBT in tandem with lower revenue.

Outlook. Notwithstanding the sequentially narrower losses, we remain cautious on PosM’s courier business as we gathered that the company has been losing out market share in the last mile delivery industry. We understand that J&T Express has been aggressively expanding and taking out the market share ahead of their Hong Kong IPO. Hence, 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. Despite the upward surprise in the results, we remain conservative and maintain our forecasts for now as we wait for more conclusive improvements.

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 - 23 Feb 2022