1HFY15 (Mar) results were in line with our estimate, as we expect higher operating expenses due to its transformation plans while 2H is normally a stronger period. We maintain BUY  with  a  new TP  of  MYR5.60 (12.4% upside,  17x  FY16F  PE)  vs  MYR5.70  previously.  Future  growth  would continue  to  be  driven  by  its  courier  division,  while  the  potential development of its Brickfields land remains a rerating catalyst. 

Broadly in line.  POS  Malaysia’s 1HFY15 net profit of MYR61.3m (-27% YoY)  met  36%  and  38%  of  our  and  consensus  full-year  forecasts respectively.  It  implemented  a  series  of  initiatives  which  led  to  higher expenditure  (mainly  staff  and  transportation  costs)  during  the  period under  review. Its mail segment  continued  to  book  a  declining  earnings contribution,  which  was  within  our  expectation,  while  its  courier  unitreported YoY growth of 25.4% and 11.6% in topline  and segmental profitrespectively. The positive performance from  its courier unit  was mainly driven by  increasing  walk-in customers,  consistent with the growth in ecommerce  transactions.  Its  retail  segment  also  improved  gradually, largely due to increased contributions from financial services.

Outlook.  POS  Malaysia is still in the midst of its  5-year  transformation plans  –  the  risk  of  which  stems  from  the  volatility  in  earnings  which resulted  from  its  unavoidable  upfront  expansion  costs.  However, management  remains  positive  that  the  company  can  chart  a  positive growth  on  a  full-year  basis.  We  expect  its  overall  margin  to  inch  up higher once its integrated parcel  centre is up and running in FY16 (which would facilitate automated parcel sorting). This, coupled with the growing demand for courier services and the growth of its courier unit, makes the company hopeful that it  would be able to offset the declining trend in the mail segment. We believe that the potential development of its landbank in Brickfields remains as a rerating catalyst. 

Maintain  BUY.  We  revised  our  earnings  forecasts  by  3%/4%  for FY15/FY16F respectively, to be conservative.  As we are still positive on its longer term-prospects, we  maintain our  BUY recommendation  with  a new TP of MYR5.60 (from MYR5.70) as we roll over our valuation to peg the stock  at a 17x FY16F P/E (from  18x FY15F  P/E). This now  puts it at a 30% discount from Singapore Post’s (SPOST SP, NR) 24x P/E, in view of its higher operating expenses. 

Source: RHB