On Friday, POS’s share price surged 21.0 sen (5.4%) to a fresh 14-month high of RM4.10 amid news that the postal company is seeking a more direct role in providing logistics services to Chinese e-commerce company Alibaba Group Holdings Ltd. Earlier in August, the company announced 1Q17 earnings which showed a 40% jump, driven by strong growth in its courier business which leveraged on e-commerce demand. Sentiment towards the stock has been improving at a rapid clip these past few months, with abundant news flow and near term catalysts including: (i) POS’s plans to transform itself into a one-stop integrated logistics services provider through soon-to-be completed corporate exercise of acquiring Kuala Lumpur Airport Services Sdn Bhd (KLAS) Group of companies, (ii) strategic initiatives to enhance customer experience with the introduction of more new 24/7 e-commerce convenient touch points as well as (iii) enhancement of facilities at all Pos Laju centres and post offices nationwide which will add a total of 110 more touch points from the current 1,030 by end-2016. From a charting perspective, POS’s share price is biased to the upside. From here, we expect a modest climb towards RM4.50 (R1) over the next 1-2 months and possibly RM4.76 (R2) further up the line. Investors who wish to gain a leveraged exposure may consider POS-CX (strike RM3.10) which offers an effective gearing of 3.79x. For this structured warrant, a modest 9.6% climb in the underlying price to RM4.50 would translate to approximately 36% gain in POS-CX to RM0.47.

Structured Warrant Strategy:

Investors who wish to gain a leveraged exposure have seven (7) Call Warrants to choose from. Of these, POS-CX (strike RM3.10) offers the highest effective gearing at 3.79x. POS-CX has been popular among investors with 5.2m units changing hands on Friday (30-day average volume of 1.5m units) and also has the advantage of being reasonably priced at just 31.1% implied volatility. The main caveat is the relatively short time to expiry of 3 months, which offers very little buffer should the stock take longer to perform. For a more conservative option, we also like POS-C3 (strike RM4.00) which currently offers an effective gearing of 3.42x. This Call Warrant has a much longer time to expiry of 8 months yet is reasonably priced at 43.9% implied volatility. Combined, this means POS-C3 provides adequate buffer trading strategy to unfold with little ill-effects from time decay.

Source: Kenanga Research - 17 Oct 2016