POS’s FY23 results disappointed us on poor cost containment. The deteriorating operating environment at its postal segment and logistics services negated the recovery at its aviation services. We widen our FY24F net loss forecast by 83%, reduce our TP by 13% to RM0.33 (from RM0.38) and maintain our UNDERPERFORM call.

POS’s FY23 core net loss came in wider than our expectation. The key variance against our forecast came from its inability to contain operating expenses. There is insufficient research coverage by the market to form a consensus estimate.

YoY, POS’s FY23 revenue fell 5%, dragged by waning demand for its postal service (-12%) and logistics services (-7%), mitigated by the recovery in aviation (+19%), and other services (+28%).

Its postal sales continued to be affected by the shifting trend from online shopping back to bricks-and-mortar, worsened by lower demand from major e-commerce players shifting towards in-house delivery capabilities (i.e. Shopee shifting toward its own Shopee Express).

Meanwhile, its logistics sales recovered in 1Q with the upliftment of the coal export ban imposed by Indonesian government since Jan 2022, but demand had since dwindled. Meanwhile, its aviation sales continued to recover on re-opening of international borders especially the re-activation of umrah charter flights which drove in-flight catering higher.

All in, its FY23 core net loss widened by 45%.

QoQ, POS’s 4QFY23 revenue decreased marginally as the recovery in aviation (+16%) and other services (+17%) from economies re-opening, was offset by weak top lines from postal services (-4%), and logistics services (-10%) weighed down by unfavourable business environment.

Its core net loss more than doubled on higher operating cost.

Forecasts. We widen our net loss forecast for FY24 by 83% to account for higher operating cost. We also introduce FY25F core net loss at RM52.4m (-7%)

Valuations. We reduce our DCF-derived TP by 13% to RM0.33 from RM0.38 based on an unchanged discount rate equivalent to a WACC of 6.2% 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.

Investment case. We are cautious on POS due to: (i) its struggling conventional mail business which is trying 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 share, and (iii) its cost- cutting measures being insufficient to counter its weakening core business revenue. While we applaud its recent venture into “POS Shop” convenience stores through transforming its existing POS stores (currently 9 stores and target of 50 stores for FY24), we are concerned on the gestation period of the stores to achieve operational efficiency.

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 - 29 Feb 2024