The purchase of two second-hand bulk carrier vessels at USD32.9m will allow POS to fulfil its USD194m 10-year contract of transporting coal into Malaysia, which commenced in July 2016. While the capex involved for the acquisitions are considerably higher compared to POS’s historical capex levels, the group is still likely to maintain its net-cash position. Likewise, revenue impact from the contracts is also deemed to be already factored-in. We are keeping our forecasts unchanged pending upcoming 1Q18 quarterly results. Maintain UNDERPERFORM with unchanged TP of RM4.00.

Purchase of two second-hand vessels. POS had signed a Memorandum of Agreement with (i) Ratu Shipping Co., S.A. for the acquisition of a second-hand Kamsarmax bulk carrier vessel namely ‘Golden Trader 1’, and (ii) Trans Nanjing Shipping Ltd. for the acquisition of a second-hand Post-Panamax bulk carrier vessel namely ‘Trans Nanjing’, for a total purchase consideration of USD32.9m (equivalent to RM141.4m based on an exchange rate of RM4.30/USD). The acquisition is expected to be completed latest by 31 December 2017.

Vessels to be utilised to fulfil contracts. POS was awarded with two contracts by TNB Fuel Services Sdn Bhd on 19 July 2016 to transport coal from various countries into ports in Malaysia. The contracts are cumulatively valued at USD194m (equivalent to RM834.2m based on an exchange rate of RM4.30/USD), with a duration of 10 years. The acquisition of the two vessels was part of the requirements of the contracts awarded. Prior to the acquisition of the two vessels, POS has been utilising charted vessels to transport the coal.

No changes to earnings forecasts. As the acquisitions are expected to be completed by end of the year, impact towards FY18E earnings should be neutral. Likewise, given that the contracts were secured by KLAS before POS’s completed acquisition of the former in midSeptember 2016, revenue generated from the contracts is also deemed to have already been factored-in. With that said, capex incurred for the acquisition is comparatively high, with POS only incurring capex of RM105-121m per year for the past three years. However, assuming the acquisitions will be funded entirely through borrowings, POS is still likely to maintain its net-cash status, having being in a net-cash position of RM536m as at end-Mar17. Overall, we opted to maintain our forecasts for now, pending the release of its upcoming 1Q18 quarterly results later this week.

Maintain UNDERPERFORM with an unchanged TP of RM4.00, derived based on 25x PER on FY18E. The stock is currently trading at 34x forward PER, which is higher compared to global comparable peers, such as UPS at 19x PER, and SingPost at 24x PER. Likewise, POS’s earnings are also expected to be dragged down by its lossmaking postal services segment, which is not expected to reverse to the black any time in the foreseeable future. Risks to our call include (i) lower-than-forecasted earnings from logistics operations, and (ii) lower-than-expected losses from its postal services.

Source: Kenanga Research - 14 Aug 2017