1HFY21 net loss expanded to RM120.1m compared to our/consensus full-year net loss estimate of RM118.3m/RM65.8m, respectively. We deemed the results to be below our expectation with larger-than-expected losses in postal segment despite sustainable profit from courier business and unexpected recovery in aviation segment. Thus, our FY21 net loss estimate is doubled to RM226.5m, but we maintain our FY22 net profit expectation on post-pandemic recovery. A silver lining is the courier and logistics business returning to the black, with better sales and cost management for aviation segment. Maintain MP with unchanged TP of RM0.800.

YoY, 1HFY21 net loss expanded to RM120.1m compared to net loss of RM71.2m in 1HFY20 mainly from decrease in postal segment’s revenue (-9%) with expanded loss of RM170.3m compared to loss of RM45.7m in 1HFY20 (which also includes impairment of PPE amounting to RM46.7m) following the decrease in mail (-20%) and parcel volume handled especially from contract customers affected by another lockdown (that started in June 2021). This was, however, cushioned by: (i) stronger revenue in Logistics segment (+35%) which returned to profit of RM3.5m compared to segment loss of RM20.9m in 1HFY20 from freight management business (especially from freight forwarding) and automotive business (largely from the local automotive production volume and commencement of a new warehouse), as well as (ii) recovery in aviation division’s revenue (+10%) with lower segment loss at RM13.8m compared to segment loss of RM18.6m in 1HFY20 with increased contribution from e-commerce warehousing and cargo and ground handling businesses with better cost management.

QoQ, 2QFY21 net loss expanded to RM68.6m compared to net loss of RM51.5m in 1QFY21 mainly due to lower overall revenue (-10%) weighed down by both postal segment (-14%) and logistics (-11%) due to lockdown-induced minimal operating time. This was however cushioned by the recovery in aviation division’s revenue (+39%) with lower segment loss at RM5.2m compared to segment loss of RM8.6m in 1QFY21 due to better services and cost management.

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 is expected to improve on e-commerce demand, but 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. As part of rationalisation initiative, (i) four more Mail Processing Centres (MPCs) are expected to be rationalised in 3Q/4QFY21, (ii) outsourcing models for Pos Rider (PR) and land transportation in order to manage costs better will be revisited, and (iii) Pos Aviation will continue to manage its operational costs to minimise losses.

FY21E net loss is doubled to RM226.5m (from net loss of RM118.3m), with unchanged FY22E net profit at RM62.2m. For the immediate term, we expect the lockdown to continue weighing on postal and logistics segments, but anticipate it to fully end by December while we maintain the FY22E net profit on post-pandemic recovery.

Maintain MP with unchanged TP of RM0.800 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 - 17 Aug 2021