POS’s FY22 results disappointed, registering another quarterly loss hurt by: (i) decline in courier volume as competitors cut prices, and (ii) accelerated in-sourcing of delivery service by e-commerce players. Hence, we widen FY23F net loss by 11%, reduce TP by 6% to RM0.46 (WACC: 6.8%; TG: 0%) from RM0.49, and maintain our UNDERPERFORM call.

FY22 core net loss of RM101.1m disappointed, coming in 29% and 8% wider than our net loss forecast and the consensus loss estimate, respectively. The key variance against our forecast came from further weakening of its waning postal business as its courier volume was affected by competitors cutting prices and accelerated in-sourcing of delivery service by e-commerce players.

YoY, FY22 revenue fell 11% dragged by waning demand for its postal (-19%) and logistics (-3%) services while partially mitigated by recovery in aviation (+18%) and others services (+18%).

Its postal sales were affected by the shifting of purchasing trend from online shopping back to bricks-and-mortar shopping since the start of endemic phase, worsened by lower demand from major e-commerce players shifting towards internal delivery capabilities (i.e. Shopee shifting toward its own Shopee Express).

Meanwhile, its logistics sales were in a seasonally low period and suffered adverse impact in its marine business from the coal export ban imposed by the Indonesian government in January 2022.

On the other hand, its aviation sales recovered on reopening of international borders especially the re-activation of umrah charter flights which drove in-flight catering higher.

Core net loss halved to RM101.1m mainly due to lower operating costs (-14%) driven by effective cost savings effort including the Mutual Separation Scheme (MSS) exercise in 2021.

QoQ, 4QFY22 revenue fell 5% on highly competitive business environment resulting in a slowdown in postal (-10%), logistics (-4%) and aviation (-5%) segments. This was partially mitigated by sustained recovery from others services (+44%) on the reopening of economy. 4QFY22 core net loss expanded more than double due to poor cost absorption on reduced volumes.

Forecasts. We widen our net loss forecast for FY23 by 11%, and introduce our FY24F numbers, which is a much narrower loss forecast at RM16.1m (-70%) underpinned by improved economic outlook.

We reduce our DCF-derived TP by 6% to RM0.46 from RM0.49 based on a discount rate equivalent to a WACC of 6.8% and a terminal growth rate of 0%. There is no adjustment to our TP based on ESG given a 3- star rating as appraised by us (see Page 4). Maintain UNDERPERFORM.

We are cautious on POS due to: (i) its conventional mail business continuing to struggle to stay relevant in the digital age, and we doubt that we have seen the bottom, (ii) its declining courier volume as incumbent POS has to face tremendous competition from new players such as J&T Express and Ninja Van that undercut aggressively on rates to grow their market shares, and (iii) its cost-cutting measures being insufficient to counter its weakening core business revenue.

Risks to our call include: (i) the privatisation of POS at a premium over the market price, (ii) the return of profitability as cost rationalisation efforts finally pay off, and (iii) POS emerging stronger post the consolidation of the courier service segment after weak players are eliminated.

Source: Kenanga Research - 21 Feb 2023