Period

4Q15/FY15

Actual vs. Expectations

12M15 net profit of RM127m (-20% YoY) came in short of 16% and 13% from our and consensus fullyear forecasts, respectively. The negative variance from ours was due to higher-than-expected operating expenses.

Dividends

No dividend was declared during the quarter. Key Result

Highlights

QoQ, 4Q15 revenue rose 10% as 2Q15, driven by mail and courier. Mail revenue rose 13% due largely to a one-off recognition of expired postal orders amounting to RM27.4m as well as higher contribution from both international business and registered mail. However, lower operating profits were reflected by the increase in operating expenses, particularly in staff cost resulted from increased volume handled in courier business segment. This brings 4Q15 net profit lower QoQ by 56% to RM19.9m.

YoY, FY15 operating expenses rose by 9% YoY primarily due to staff and transportation costs. The higher staff cost was due to the strengthening of growth segments such as PosLaju and over-thecounter Financial Services at post offices. The higher transportation cost was due to higher expenses relating to cross-border postal charges arising from the growth in trans-shipment business which Pos Malaysia only embarked upon during the latter half of FY14 and increase in air freight charges relating to Universal Service Obligation under the Postal Services Act 2012. This brings FY15 net profit to RM127m (-20% YoY).

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 provide efficient logistic management services.

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 to 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 downgrade our FY16E net profit by 19% due to the poor set of results to take into account of higher operating expenses and lower volume growth.

Rating & Valuation

Correspondingly, we downgrade our TP from RM4.44 to RM4.11 based on 17x FY16E EPS sen. We roll forward our valuation to FY16 and higher PER of 15x to 17x based on +1 SD above historical mean.

Risks

Delays in execution of its business transformation plan.

Source: Kenanga Research - 25 May 2015