9MFY20 pared core losses to RM255m compared to 9MFY19 core profit of RM307m, versus our full-year core losses estimate of RM191m and consensus core losses of RM111.4m. We deem the results to be within our expectation, as we expect earnings momentum to improve in 4QFY20, underpinned by the automotive division - sales tax exemption and new car launches. No change to our earnings forecasts. Maintain MP with Sum-of-Parts (SoP) derived-TP of RM2.10. Our TP implies a PER of 16x on FY21E EPS.

YoY, 9MFY20 core losses of RM255m compared to core profit of RM307m for 9MCY19. This was mainly due to lower overall sales (-21%) impacted by the COVID-19 pandemic and further worsened by the unfavourable forex movement, which caused the group to recognise forex losses on translation of payables and borrowings denominated in foreign currencies. Automotive segment sales (-22%) were affected by the business closure during MCO in 2QFY20 but had since recovered with Proton sales at 73,547 units (+42%) and Honda sales at 34,655 units (-56%). Services segment registered weaker sales (-19%) from: (i) Pos Malaysia’s aviation division which suffered losses from flight cancellations during this outbreak as international borders were closed, but cushioned by the recovery in courier and mail business from stronger e-commerce and online market place demand; as well as (ii) weaker performance from banking (Bank Muamalat) due to we believe higher financing impairments. Revenue from property sector (-74%) was mainly from construction-related projects, which was impacted by temporary closure of construction sites due to MCO. Note that our 9MFY20 core losses exclude: (i) modification losses on financing moratorium (RM60.6m), (ii) impairment loss on PPE (RM54.6m), and (iii) others disposal gain (RM66.4m).

QoQ, 3QFY20 recorded a significant turnaround to core PATAMI of RM72m from core losses of RM214m in 2QFY20, mainly from higher sales (+78%) from stronger Automotive sales (+141%) on sales-exempted promotion and its turnaround to profit of RM141m compared to segment losses of RM221m. Both Proton and Honda recorded higher unit sales of 36,469 units (+138%) and 17,531 units (+191%), respectively. Services sector (+225%) also recorded recovery with Pos Malaysia’s 3QFY20 net loss narrowing to RM7.4m compared to RM19.0m in 2QFY20, mainly attributed to the mail and retail businesses in the postal segment and the logistics segment and further supported by higher banking revenue (bank muamalat). Property sector (+162%) recorded better construction-related projects with the gradual recovery in the economy.

Outlook. During this sales tax exemption period, the group’s marques are expected to boost their sales performance by featuring new or revised models. To illustrate, Volkswagen has launched Arteon, Tiguan Allspace SUV and the Passat R-Line, Audi introduced the Q3 Sportback while Proton unveiled the Proton X50 (Geely Binyue) recently. Honda has launched the face-lifted BR-V in July 2020 and the all-new Honda City recently. Despite the challenging environment, Pos Malaysia’s on-going transformation efforts will augment the improved tariff rates and the growing demand for e-commerce. Other businesses in the group will continue to adapt to the so-called “new normal” environment to ensure financial sustainability, against the backdrop of changes in consumer behaviour.

Maintain MP with Sum-of-Parts (SoP) derived-TP of RM2.10. Our TP implies a PER of 16x on FY21E EPS.

Key risks to our call are: (i) lower-than-expected car sales volume, and (ii) lower-than-expected associates’ contribution.

Source: Kenanga Research - 27 Nov 2020