POS Malaysia (POSM) kicked off FY14 on a strong note, reporting core earnings  of  MYR44.3  for  1QFY13,  in  line with  our and  street  estimates. Its  mail  and  courier  segments  delivered  commendable  results  but  the retail  segment’s  performance  was  impacted  by  higher  operating expenses.  We  continue  to  like  POSM  for  its  strong  growth  potential. Maintain BUY with FV raised to MYR6.30.  
 
- Still shining brightly. POSM’s 1QFY14 core net earnings of MYR44.3m (+27.7% q-o-q, +43.4% y-o-y) were in line with our and street estimates. Its strong start to FY14 was mainly attributed to a higher operating profit (+33.0%  q-o-q,  +36.3%  y-o-y)  coupled  with  a  lower  zakat  expense. Although  its  operating  costs  have  escalated  by  10.8%  y-o-y,  this  was cushioned  by  lower  depreciation  and  amortisation  expenses  in  the quarter (-12.7% y-o-y).  

- Segmental performance overview. Its mail segment had commendable growth,  booking  a  profit  of  MYR44.1m  (+10.5%  q-o-q,  +12.5  y-o-y) mainly  due  to  higher  revenue  from  prepaid,  registered  mail,  admail, direct  mail  and  corporate  mail  despite  a  continuous  decline  in  franking and  ordinary  mail.  The  courier  segment  continued  to  grow  strongly, recording  earnings  of  MYR16.8m  (+14.7%  q-o-q,  60.9%  y-o-y)  mainly due to higher online transactions and extended service counter hours at certain  PosLaju  centers  in  Klang  Valley.  Meanwhile,  the  retail  segment incurred  a  MYR14.3m  loss  (-62.0%  q-o-q,  -4.0%  y-o-y)  mainly  due  to higher  operating  expenses  and  lower  commissions  earned  from agencies despite slightly higher revenue from philately items and storage fees from Ar Rahnu.

- Outlook  and  risks.  We  remain  upbeat  on  POSM’s  outlook  as  its strategic transformation plan could push the company’s performance to a new high. The main risks are higher staff costs, volatility in jet fuel prices and a possible slowdown in its core businesses.

- Maintain BUY. We revise our FV for POSM to MYR6.30 from MYR6.00, pegged  to  18x  FY14F  P/E  (from  17x).  This  is  a  9.7%  premium  against Singapore POST (Not Rated, SPOST SP) but we think this is justifiable as POSM has a lower PEG (please see Table 3 below). Maintain BUY.

Source: RHB