POS Malaysia Bhd’s inability to close down post offices coupled with its unionised workforce could well mean that profitability at its postal services segment is capped.

However, the company’s courier business is expected to improve on e-commerce demand but will continue to operate in a competitive environment pressured by price and cost challenges, according to Kenanga Research.

“The group is continuing with its efforts to manage cost with a forecast of RM24 mil costs saving yearly,” opined analyst Wan Mustaqim Wan Ab Aziz in a results review.

“Going into 2022, Pos Malaysia will continue executing its turnaround initiatives, improving both its service and its efficiency to create the platform to capitalise on the ongoing e-commerce growth opportunities.”

Pos Malaysia’s core net loss for 9M FY2021 expanded to RM163.2 mil year-on-year from RM78.6 mil in a year ago from a decline in postal segment’s revenue (-13%) with expanded loss of RM211.5 mil compared to loss of RM44.5 mil in 9M FY2020.

The loss also took into account impairment of property, plant and equipment (PPE) amounting to RM46.7 mil following the decrease in mail and parcel volume handled especially from contract customers affected by the lockdown that started in June 2021.

All-in-all, Kenanga Research maintained its “market perform” rating on Pos Malaysia with an unchanged target price of 72 sen based on 10 times FY 2022E earnings per share (EPS). “The saving grace is a 5% dividend yield,” added the research house.

Elsewhere, Hong Leong Investment Bank (HLIB) Research also retained its “hold” call on Pos Malaysia with an unchanged target price of 76 sen given its challenging near term outlook.

“However, with the share price at a 17-year low, we believe the negatives have been largely priced in,” reckoned analyst Nazira Abdullah.

“During our meeting with management recently, we gathered that the new management team is targeting to breakeven at pre-tax profit level by 1H FY2022 through reduction of production cost (>10%) and indirect cost (>25%),” the research house pointed out.

“We reckon this new (management) team could be more ‘action-oriented’ on their targets, not just providing eloquent talks on transformation.”

Pos Malaysia’s improved quarter-on-quarter performance is a good preliminary execution sign.

“However, we believe it is still too early to be optimistic as Pos Malaysia’s operating environment continues to be challenging, being hampered by the fast shrinking snail mail volume as well as the fierce competition in last mile delivery industry,” added HLIB Research.

At the close of today’s mid-day trading, Pos Malaysia was down 5 sen or 6.37% to 73.5 sen with 1.99 million shares traded, thus valuing the company at RM575 mil. – Nov 17, 2021