POS Malaysia (POSM)’s 1HFY14 core earnings grew  16.2%  y-o-y despite higher  operating  costs.  Most  of  its  businesses  (except  retail)  saw positive  earnings  growth,  while  its  courier  services  remained  the  key growth  driver.  We  remain  upbeat  on  POSM’s  outlook,  but  keep  our earnings forecasts unchanged pending more updates from  the  analyst briefing on 3 Dec. Maintain BUY, with a MYR6.10 FV.

• 1HFY14  results in  line.  POSM’s 1HFY14  core  net profit of MYR84.5m (+16.2%  y-o-y)  was  within  our  and  street  expectations.  Although  the figure  made up  just  46.4% of our FY14 full-year forecast,  we believe a stronger 2H is in store to make up for the shortfall. Revenue grew 10.0% y-o-y to MYR672.8m but was partly offset by higher operating expenses,ie  higher  staff  costs  and  expenses  relating  to  transportation,  raw materials and consumables, repair and maintenance as well as rental.
• Encouraging  results.  We find  the results  very encouraging. Total mail revenue, which was  expected  to  see  a  contraction in growth due to esubstitution,  increased  6.8%  y-o-y  on  the  back  of  higher  revenue  in prepaid,  registered  mail,  admail,  direct  mail,  international  mail  and corporate mail  –  which  offset the decline  in franking and ordinary mail. Meanwhile,  its  courier  services  registered  double-digit  revenue  growth (+21% y-o-y), driven by increased revenue from on-demand and contract customers,  as  well  as  parcels  and  prepaid  box/envelope  sales  amidimproved  e-commerce  businesses.  Its  retail  division  saw  operating losses  narrow  by MYR0.8m due to lower depreciation and  amortisation expenses,  coupled  with  higher  storage  fees  from  its  Islamic  microfinancing unit, Pos Ar-Rahnu SB.
• Risks. The main risks are higher staff costs, volatile jet fuel prices and a possible slowdown in its core businesses.
• Maintain  BUY,  MYR6.10  FV.  We  keep  our  earnings  forecasts unchanged,  pending further details  from  its analyst  briefing scheduled  to be  held  on  4  Dec.  Maintain  BUY  on  the  stock,  with  our  MYR6.10  FV pegged to a 18x FY14F P/E, which is at a premium to    Singapore POST (SPOST SP, NR)  –  as we believe  POSM  currently has  stronger growth potential than SPOST.

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POS Malaysia (POSM) is Malaysia's exclusive mail services provider.

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Source: RHB