We like POS Malaysia (POSM)’s solid balance sheet and robust growth potential. We have incorporated higher cost assumptions following the recent  fuel  price  hike,  and  accordingly  trimmed  our  earnings  by 2.1%/3.4%  for  FY14F/FY15F  respectively.  Still,  POSM  remains  our  Top Pick for the logistics sector. Maintain BUY, with a lower FV of MYR6.10. 
 
- Good  start  to  1QFY14.  POSM’s FY14  took  off  on  a  strong  note  as  it posted  a  43.4%  y-o-y  jump  in  core  earnings  to  MYR44.3m  in  1QFY14, mainly  bolstered  by  a  higher  operating  profit  and  lower  zakat  (tax) expenses.  Its  mail  segment  saw  commendable  growth,  booking  a  profit of  MYR44.1m  (+12.5%  y-o-y)  while  earnings  in  the  courier  segment soared  60.9%  y-o-y  to  MYR16.8m.  Meanwhile,  the  retail  segment incurred  a  wider  loss  of  MYR14.3m  (-4.0%  y-o-y),  mainly  due  to  higher operating expenses and lower commissions from agencies.

- Revising  earnings.  As  we  adopt  a  more  prudent  stance,  we  are incorporating  higher  cost  assumptions  in  our  model  due  to  the  hike  in petrol  prices  as  well  as  weaker  MYR  vs  USD  given  the  company’s exposure  to  jet  fuel  in  its  postal  business.  Management  expects  the  20 sen fuel price hike to shore up its operating costs, adding that transport cost may go up to 13.5-14.0% of costs from 13.0% previously. As such, we  are  trimming  our  core  earnings  for  POSM  to  MYR182m/MYR203m from MYR186m/MYR210m previously.  

- Outlook still bright. Despite our earnings revision, we remain upbeat on POSM’s outlook as its strategic transformation plan could push the company’s performance to new levels.  The  main  risks  are  higher  staff costs,  volatility  in  fuel  prices  and  a  possible  slowdown  in  its  core business.

- Maintain  BUY,  FV  tweaked  lower. We lower  our  FV  to  MYR6.10  from MYR6.30,  pegged  to  an  18x  FY14F  P/E,  as  we  revise  downwards  our earnings  forecasts  for  FY14F/FY15F.  POSM  remains  our  Top  Pick  for the  logistics  sector.  The  potential  catalysts  include:  (i)  potential developments on its landbank, which would boost its balance sheet, and (ii) acquisitions to reduce reliance on its postal business.

Source: RHB