1QFY22 core net loss narrowed to RM31.8m compared to core net loss of RM42.1m in 1QFY21. Against our net profit estimate of RM56.3m, and consensus full-year net loss estimate of RM55.7m, it is below our expectation from weaker-than-expected demand in its courier segment. We revised FY22E earnings to core loss of RM50.9m from core profit of RM56.3m, and decreased FY23E earnings by 8% on inconsistent demand from courier segment during the endemic transition phase. Its effective cost management effort is still on track with expected turnaround to profitability in FY23. Maintain OP with an unchanged TP of RM0.720 based on 10x PER on roll-over valuation base of FY23E EPS (from FY22E).

YoY, 1QFY22 core net loss narrowed to RM31.8m compared to core net loss of RM42.1m in 1QFY21 despite lower revenue (-19%) mainly due to effective cost management effort evidenced in lower transportation and delivery cost recorded coupled with the recent Mutual Separation Scheme (MSS) exercise which contributed to the lower staff cost (lower cost sales & operating expenses by 19%). Overall weak sales (-19%) was due to the slowdown in Postal segment (-25%) and Logistics (-44%), offset by stronger Aviation (+76%) from increased contribution in cargo tonnage handled and ground handling revenue, with addition to the re-activation of umrah charter flights which drove in-flight catering business higher. Postal segment sales were affected by the shifting of purchasing trend from online shopping to bricks-and-mortar shopping during the early endemic phase, and further from lower demand by major e-commerce players which are shifting towards internal delivery capabilities. On the other hand, Logistics segment was in a seasonally lower trend and suffered adverse impact in its marine business from the coal export ban imposed by Indonesian government in January 2022.

QoQ, 1QFY22 net loss expanded to RM31.8m compared to net loss of RM26.2m in 4QFY21 in concurrence with lower sales (-8%) on seasonally lower demand from both Postal segment (-8%), and Logistics Segment (-34%), cushioned by stronger Aviation segment (+19%) demand as mentioned above.

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 will continue to operate in a competitive environment pressured by price and cost challenges. Nonetheless, parcel volume will continue to be elevated under the “new normal environment” driven by online commerce, offsetting the reduction in footfall into post offices Logistics segment was driven by freight management business (especially from freight forwarding) and automotive business (largely from the local automotive production volume and commencement of a new warehouse). Aviation division is starting to take off on increased contribution from e-commerce warehousing, higher cargo tonnage handled (increasing number of flights), and ground handling businesses with better cost management.

We revised FY22E earnings to core loss of RM50.9m from core profit of RM56.3m, and decreased FY23E earnings by 8% on inconsistent demand from courier segment during the endemic transition phase. Its effective cost management effort is still on track with expected turnaround to profitability in FY23.

Maintain OP with an unchanged TP of RM0.720 based on 10x PER on roll-over valuation base of FY23E EPS (from FY22E). 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 - 26 May 2022