Period  4Q14/FY14

Actual vs. Expectations  FY14 net profit of RM159m (5% YoY) came in within expectations, at 96% and 103% of our and consensus full-year forecasts.

Dividends  No dividend was declared during the quarter.

Key Result Highlights QoQ, 4Q14 revenue rose 28% across the board, led by mail (+31%), retail (+32%) and courier (+15%) and others (+33%) (refer to summary results table below for further details). Correspondingly, QoQ, 4Q14 operating profit rose >100% due to solid contribution from mail, reduced losses from retail which we believe is due to narrowing losses from Al-Rahnu and the absence of higher on-off staff cost, which was incurred in 3Q14. This brings PATAMI to RM52.2m boosted by a lower effective tax rate of 27% compared to 32% in 3Q14.

 YoY, 12M14 revenue rose 12% driven by mail (+7%); courier (+22%) and retail (+5%). (refer to summary results table below for further details). FY14 operating profit rose 25% to RM202m on the back of higher revenue despite an increase in expenses, which increased by 11% due to increase in staff costs as a result of higher staff headcount, transportation charges for air transport due to increase in transhipment business and higher rental and maintenance costs. The increase was mitigated by lower depreciation and amortization charges and other operating expenses in marketing and advertising. However, due to the higher-than expected operating expenses and higher effective tax rate, FY14 net profit only rose 5% to RM158m.

Outlook  Pos Malaysia is looking to grow its profitable courier and logistics segment by leveraging on its wide Pos Laju network as well as extracting further synergies from Kuala Lumpur Airport Services (KLAS), a wholly-owned subsidiary of DRB-Hicom and Pos Malaysia, to create an efficient logistic management service.

 The group is also strengthening its retail segment, making it a one-stop solution centre, especially with the growth of its Islamic pawn-broking (Ar-Rahnu) business.

 Looking ahead, Pos Malaysia is staying on course implementing and delivering its five-year Strategic Plan initiated in 2012. Currently into its second phase, the plan is to create an efficient and effective foundation that will provide the strength and stability to support revenue diversification, in line with best practices of other successful postal organisations.

Change to Forecasts We are downgrading our FY15E and FY16E net profits by 10% taking into account the higher operating costs.

Rating & Valuation Correspondingly, our target price is reduced from RM5.13 to RM4.75 as we roll forward our valuation to CY15 based on unchanged 15x CY15 revised EPS of 31.7 sen in line with its peers’ average. Maintain Market Perform.

Risks to Our Call  Delays in execution of its business transformation plan.

Source: Kenanga