While 9MFY15 earnings seem weak, we expect the seasonally stronger 4QFY15  to  compensate  for  the  shortfall  on  the  back  of  higher  postal rates  and  low fuel price giving boost to margins.  We reiterate our BUY call  and  MYR5.60  TP (22% upside)  premised at 16.5x FY16 EPS.  In the quarter period under review, POS  Malaysia saw its margins expanding significantly.

Within.  With  9MFY15  (Mar)  core  earnings  (-6.8%  YoY)  accounting  for 61%  of  full-year  net  profit,  POS  Malaysia’s  earnings  look  short  of  our estimates.  However,  with  the  January-March  period  typically  being  a seasonally stronger quarter,  coupled with the lower fuel prices boosting margins  further,  we  deem  the  earnings  to  be  in  line.  Revenue  growth (+9.6%  YTD),  as  anticipated,  was  driven  by  the  courier  and  retail segments,  which  grew  by  23.7%  and  29.4%  YTD  respectively.  The courier  segment  benefited  from  strong  e-commerce  activities  driving package deliveries whilst the retail segment witnessed improved counter transactions  of  various  financial  services   and  insurance  commissions. Despite the 8.6% YoY growth in 3QFY15 revenue, EBITDA grew 67.4% YoY  as  margins  expanded  strongly  (up  by  8.4ppts  to  8.4%)  as  more economies  of  scale  were  achieved  on  the  stronger  volume  from  the courier segment and retail transactions.

Outlook ahead. The consistent double-digit quarterly YoY growth in the courier  segment  will  continue  to  be  POS  Malaysia's  earnings  driver. Effective  1  Jan  2015,  the  Malaysian  Communications  and  Multimedia Commission  (MCMC) has set the minimum floor  price on postal charges for documents below 500g  at MYR5. This was not applicable earlier. We believe,  POS  Malaysia  will  benefit  –  notably  for  its  postal  services  –given  its  dominant  market  share.  The  company  previously  charged documents weighing below 500g at MYR3.50 within Kuala  Lumpur  and MYR4.50 to anywhere within West  Malaysia. We do not see the courier segment  benefiting  from  this  as  most  of  its  volume  handled  typically weighs  >500g.  Furthermore,  the  low  pump  price  will  be  a  boost  to margins  for  POS  Malaysia,  noting that fuel costs amount up to 22% of total costs.  

Forecasts. Unchanged.

Maintain  BUY.  We  reiterate  our  BUY  call  with  our  TP  unchanged  at MYR5.60  premised  at  16.5x  FY16F  EPS.  This  is  a  steep  discount  vs Singapore  Post’s  (SPOST  SP;  NR)  24x  FY16F  P/E.  POS  Malaysia remains our Top Pick in the logistics sector.

Source: RHB