FY20 Net Loss narrowed to RM127.2m, compared to our estimate of RM64.1m and consensus estimate of RM76.4m. We deemed the results to be below our expectation due to unexpected shutdown of its main parcel processing centre in October and November 2020 due to COVID-19 outbreak. This resulted in higher-than-expected logistics cost as parcels were re-routed to other processing centres. The main centre has since re-opened back to full capacity, and we expect FY21 to be supported by the expected re-opening of the economy and better costs reduction efforts. Maintain MP and TP of RM1.00 based on 10x FY21E EPS.

Results’ highlights. QoQ, 4QFY20 Net Loss expanded to RM51.3m compared to Net Loss of RM7.4m in 3QFY20 as overall sales (-13%) suffered from the temporary shutdown of its main parcel processing centre in October and November 2020 due to COVID-19 outbreak, which processes up to 70% of the courier’s total parcel volume. This impacted its ability to meet the segment’s courier Service Level Agreements (SLAs), resulting in lower customer confidence, and thus lower volume of parcels received during the period. Cost of courier transportation increased by 20% compared to the preceding quarter, due to the re-routing of parcels to other processing centres and increase in shipment of bulky and large sized items especially to East Malaysia. POS typically declared its dividend during the release of its audited annual report.

YoY, FY20 net loss narrowed to RM127.2m compared to annualised FY19 loss of RM273.1m largely due to the postage tariff revision in Feb 2020. Postal segment revenue was largely contributed by courier business (46%) 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.

Note that, our 4QFY20 and FY20 core LATAMIs are derived after excluding one-off expenses incurred which included RM123.3m goodwill impairment, RM41.6m provision for Mutual Separation Scheme and RM16.2m in property, plant and equipment impairments.

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 with forecasted RM24m costs saving yearly. The reinstatement of MCO 2.0 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 1QFY21 driven by the online campaign and CNY online sales, offsetting the reduction in footfall into post offices resulting in a dip in its retail business revenue.

Maintain MP with unchanged TP of RM1.00 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 - 23 Feb 2021