FY15 core earnings were a slight miss of 6% on higher staff costs at its expanding courier segment, thus prompting us to lower our FY16/FY17 estimates by 11%/6%. Maintain BUY but lower TP to MYR5.44 (from MYR5.60, 10% upside) premised at 18x FY16F P/E, ie a 21% discount to Singapore Post’s FY16 P/E. Revenue growth ahead will be driven by higher contributions from Pos Malaysia’s courier and retail segment.

• Surprisingly lower. Pos Malaysia’s FY15 (Mar) topline/core earnings missed 2%/6% of our full-year estimates respectively, although still higher than consensus by 9%. The shortfall in its topline were due to the steeper drop in the company’s traditional mail segment (-5%) while earnings suffered from another round of front-loaded staff costs at its expanding courier segment. Our initial expectations that lower pump prices and the revision of minimum floor pricing on postal charges for documents below 500g at MYR5.00 would boost margins have failed to materialise. A sizeable non-recurring expense of MYR27.4m had to be incurred in relation to expired postal orders (those exceeding threeyears), which we have deemed as exceptional items.
• Forecasts. Due to the higher-than-expected cost base, notably on staff costs from the courier segment, we have reduced FY16F/FY17Fearnings by 11%/6% respectively.
• Outlook ahead. With 49% of Pos Malaysia’s revenue contribution coming from the traditional mail segment, vis-à-vis 32% on courier services – we think the company would likely suffer a further drop in its mailing segment following the implementation of goods and services tax (GST). This is because the majority of its mail volume consists ofdocuments, which can be easily migrated to online platforms. However, this setback should be offset by higher contributions from its courier services segment, of which we expect revenue to continue to grow by 22%/20%/18% in FY16/FY17/FY18 respectively on higher e-commerce activities. Pos Malaysia’s retail segment is also showing an increase in revenue growth on counter transactions driven by its new product tie -ups with several banks and insurance providers.
• Maintain BUY. We maintain our BUY call but lower our TP to MYR5.44(from MYR5.60), premised at 18x FY16 P/E – a 21% discount to Singapore Post’s (SPOST SP, NR) FY16 P/E. In the absence of any major capex in 2016, we expect Pos Malaysia’s net cash pile to grow further, which lends support to its valuations and give scope to higher dividend payouts.