9MFY20 net loss narrowed to RM78.6m compared to our full-year net profit estimate of RM65.7m and consensus net loss estimate of RM76.4m. We deemed the results to be below our expectation due to slower-than-expected turnaround to profit for its postal services with the various MCOs. As such, we revised our FY20E earnings to core loss of RM64.1m from core PATAMI of RM65.7m. However, we increase our FY21E CNP by 13% as we expect stronger postal services contribution with the anticipated full reopening of the economy. Reiterate MP with a higher TP of RM1.00 (previously RM0.90) based on 10x FY21E EPS.

Results’ highlights. QoQ, 3QFY20 net loss narrowed to RM7.4m compared to RM19.0m in 2QFY20 mainly attributed to the mail and retail businesses of the postal segment and the logistics segment but this was offset by higher cost of sales and operating expenses mainly due to higher handling cost.

YoY, 9MFY20 net loss narrowed to RM78.6m compared to RM185.6m in 9MFY19 (Jan – Sept) largely due to the postage tariff revision in Feb 2020. Postal segment revenue was largely contributed by courier business (45%) followed by mail business (33%). The high parcel volume was due to the stronger demand from e-commerce and online marketplace which contributed positively to the courier business. Further, the postage rates revision effective 1st February 2020 also has a positive impact on the postal segment revenue. However, its aviation division suffered losses due to loss of revenue from ground handling and in-flight catering pursuant to flight cancellations in the wake of COVID-19 pandemic as international borders were mostly closed.

Outlook. Meanwhile, POS’ inability to close down post offices, coupled with its unionised workforce could well mean profitability at its postal services segment is capped. The courier business will continue to operate in a competitive environment pressured by price and cost challenges. The group is continuing with its efforts to manage cost whilst increasing operating efficiency. The Integrated Parcel Centres (IPC) in Shah Alam and a newly completed facility in KLIA have increased its processing capacity by 77% from 300,000 to 530,000 parcels per day. The reinstatement of partial movement restrictions in October 2020 should result in an increase in online shopping and will likely have a positive impact on its courier business. Parcel volume is expected to be high in 4QFY20 driven by the 11.11 campaign and yearend online sales, offsetting the reduction in footfall into post offices which should cause a dip in its retail business revenue.

We revised our FY20E earnings to core loss of RM64.1m from core PATAMI of RM65.7m to reflect a slower-than-expected turnaround to profit for its postal services. However, we increase FY21E CNP by 13% as we expect stronger postal services contribution with the anticipated full re-opening of economy and recovery in aviation division with as well as re-opening of international borders by 2HCY21.

Reiterate MP with a higher of RM1.00 (previously RM0.90) based on 10x FY21E EPS. The saving grace is a 4% dividend yield.

Risks to our call include: (i) slower-than-expected turnaround in profit for postal services and (ii) lower-than-expected margins in its courier segment.

Source: Kenanga Research - 25 Nov 2020