We attended POS Malaysia's analysts briefing yesterday, during which it announced its 9MFY13 results. The key takeaways were: (i) the group's direct mail segment performed unexpectedly well, (ii) POS Laju is aiming a double-digit growth, (iii) the company's strong cash pile and 50% dividend payout policy remain intact, and (iv) there will be more CAPEX for expansion for FY14f. Positive on the company's outlook, we are keeping our BUY recommendation, with our RM4.14 FV unchanged.

Direct mail segment performs unexpectedly well. Expecting the revenue and volume of the mailing segment to decline, we were surprised by the better-than-expected performance of the newly set-up direct mail division, which shored up the mailing segment's volume by 0.2% y-o-y. Direct mails serve as an advertising alternative for retailers to send their products directly to their targeted consumers. Management guided that the segment contribution generally comes from: (i) distribution, (ii) sale of data base, and (iii) charge for creative works. We are positive on the future development of this division, which we believe may mitigate the revenue drop in the mail segment.

POS Laju aiming for RM300m revenue. The online business, which services include delivery to consumers' doorsteps, continued to prefer POS Malaysia's courier segment. Management guided that for the first time in the company's history, volume from walk-in customers was greater than that from corporate clients. This is positive for POS Malaysia because the former generated higher revenue than the former. The group's prepaid boxes were also getting more popular for the convenience it provided. Besides, POS Malaysia's main shareholder DRB-HICOM, which is currently its top corporate client, had contributed significantly in the courier segment. Hence, management is confident of a double-digit
growth for the segment.

Strong cash pile; special dividend likely? As at 9MFY13, POS Malaysia retained its net cash position with a total cash pile of RM493.1m. While management guided that the company has been holding its dividend policy of a 50% minimum payout of its net income, we think POS Malaysia may possibly declare a special dividend in FY13f.

FY14f CAPEX budget higher than FY13f. POS Malaysia had budgeted CAPEX of about RM280m for FY13f and an even higher amount for FY14f, which will be mainly used for building new mail processing centres with automation systems. The group planned to build at least one new mail processing centre by end of next financial year. Besides, it is allocating funds to open more Ar-Rhanu outlets, its newly-established retail pawn business arm. The company had expanded to 36 outlets from 10 initially, and by April the number will reach 50. It is aiming to grow its Ar-Rhanu up to 100 outlets in two years' time. By then, contribution from this retail segment will be large enough to offset the declining contribution from the mail segment.

Tax incentives a one-off item. Management also highlighted that in 3QFY13, POS Malaysia had recognised a one-off tax incentive, resulting in a negative tax expense for the quarter under review. Moving into 4Q, tax expense will be normalised and the effective tax rate for POS Malaysia will be around 30%.

Maintain BUY, FV RM4.14. We are maintaining our positive view on POS Malaysia as it diversifies its income sources amid a declining mailing segment. Its retail segment also has shown potential positive growth, driven by the growth in its pawn broking and other agency services. That said, we decide to keep our BUY recommendation and retain our earnings forecasts, with our RM4.14 FV derived from sum-of-parts valuation, having incorporated the value of the group's land bank.

Source: OSK