9MFY21 core net loss expanded to RM163.2m compared to our/consensus full-year net loss estimate of RM207.1m/RM199.1m, respectively, within expectations. Postal segment remained a drag to the group, cushioned by courier and logistics business which returned to the black, better sales (higher cargo tonnage handled), and cost management in aviation segment. Maintain MP with a TP of RM0.720. The saving grace is a 5% dividend yield.

YoY, 9MFY21 core net loss expanded to RM163.2m compared to core net loss of RM78.6m in 9MFY20 mainly from decline in postal segment’s revenue (-13%) with expanded loss of RM211.5m compared to loss of RM44.5m in 9MFY20 (which also included impairment of PPE amounting to RM46.7m) following the decrease in mail 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 (+12%) which returned to profit of RM0.4m compared to segment loss of RM25.3m in 9MFY20 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 (+21%) with lower segment loss of RM18.1m compared to segment loss of RM30.1m in 9MFY20 with increased contribution from e-commerce warehousing, higher cargo tonnage handled (increasing number of flights), and ground handling businesses with better cost management.

QoQ, 3QFY21 net loss decreased to RM43.1m compared to net loss of RM68.6m in 2QFY21 despite registering flat revenue growth mainly due to lower cost of sales and operating expenses by RM28.9m in the current quarter primarily from lower transportation cost (largely due to extended lockdown which reduced transportation need for its automotive business as well as Airline haul business).

Outlook. 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 ecommerce 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. Going into 2022, Pos Malaysia will continue executing its turnaround initiatives, improving both its service and its efficiency to create the platform to capitalize on the ongoing e-commerce growth opportunities.

Maintain MP with unchanged TP of RM0.720 based on 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 Nov 2021