We  remain  bullish  on  POS  Malaysia  (POSM)’s  2014  outlook,  with  its courier  segment  as  its  main  growth  engine  and  increasing  volume  in the  direct  mail  segment.  The  IPC,  expected  to  be  completed  in  6-12 months, will enhance  cost efficiencies  and increase the capacity of its courier arm. Maintain BUY,  with our  FV revised upward to MYR6.80 as we roll over our valuation to FY15F applying an unchanged 18x P/E.

• Maintaining  growth  pace.  POSM’s  earnings  jumped  19.3%  y-o-y  in FY13 and 16.2%  y-o-y  in 1HFY14, spurred by  revenue growth of 6.8%yo-y  and 10% y-o-y respectively. With a seasonally stronger 2H bolstered by  stronger volume,  notably from courier and direct mail,  we expect  the group’s  FY14  earnings  to  improve  by  more  than  20%.  Volume  in  the seasonally  stronger  2H  will  be  spurred  by  the  upcoming  festive celebrations, year-end sales promotions and higher business transaction mail  volume.  The  courier  segment  is  also  expected  to  maintain  its positive growth trend in tandem with the overall growth in e-commerce.
• Outlook for 2014.  POSM’s courier business  will  remain its  main growth driver. Plans are in the pipeline to improve  operating efficiencies while at the  same  time  grow  capacity  via  the  group’s  new  Integrated  Parcel Centre (IPC)  due to be completed within 6-12 months. The IPC will be located at the  group’s national  mail  centre in Shah Alam.  We envisage solid performance for POSM  over FY14-FY15 as  its growing business, improving  efficiency at its courier segment and  resilient volume  from the mail  segment  boosted  by  higher  direct  mail  volume,  as  well  as  the revision  in  international  postal  rates  offset  the  natural  decline  in conventional mail postage.  
• Maintain BUY, lifting FV. We maintain our BUY rating  on POSM  as we continue to be  upbeat on the group’s  transformation  initiatives. We raise our  FV  to  MYR6.80  (from  MYR6.10),  pegged  at  an  unchanged  P/E  of 18x,  and rolling over  our multiples to FY15  from FY14  previously.  At an 18x P/E pegged  to  its resilient earnings growth expectation,  the stock is still at a discount to SPOST’s (NR) P/E of 20x.  Its potential catalysts are an  earnings  accretive  acquisition  (currently  being  explored),  land  bank development and higher than expected revenue from its mail segment, on which we are conservative with our assumption of flat yields.

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POS Malaysia is the Malaysia's exclusive mail services provider.

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Source: RHB