1QFY21 net loss narrowed to RM51.4m, compared to our full year net loss estimate of RM60.5m and consensus net profit estimate of RM2.6m. We deemed the results to be below our expectation with a slower recovery in aviation segment on continued closure of international borders and sustained high losses in postal segment despite stronger courier business. Thus, our FY21E net loss estimate is widened to RM118.3m and FY22E net profit is trimmed by 9.2%, and TP lowered to RM0.800 (from RM0.880). A silver lining is the courier and logistics business returning to the black. Maintain MP.

Results highlight, YoY, 1QFY21 net loss narrowed to RM51.4m compared net loss of RM52.2m in 1QFY20 mainly from: (i) stronger revenue in Postal segment (+9%) with narrower segment loss of RM46.8m compared to segment loss of RM49.9m in 1QFY20 following an increase in parcel volume (+18%) largely from contract customers, and (ii) stronger revenue in Logistics segment (+34%) which has turned to profit of RM1.7m compared to net loss of RM4.9m in 1QFY20 from freight management business (especially from freight forwarding) and automotive business (largely from the local automotive production volume and commencement of a new warehouse). However, its aviation division continued to suffer 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.

QoQ, 1QFY21 net loss was flat at RM51.4m compared to net loss of RM51.3m in 4QFY20 despite higher overall sales (+9%) with the continued losses in the Aviation and Postal divisions overwhelming the improvements in Logistics and Other segments.

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 3.0 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 2QFY21 driven by the online campaign and MCO online sales, offsetting the reduction in footfall into post offices resulting in a dip in its retail business revenue.

FY21E net loss estimate is widened to RM118.3m and FY22E net profit trimmed by 9.2% on expectation of longer recovery in aviation segment on continued closure of international borders and losses in postal segment remain high despite stronger courier business.

Maintain MP with a lower TP of RM0.800 from RM0.880 based on unchanged 10x FY22E EPS. The saving grace is a 5% 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 - 27 May 2021