AMBANK Research has slashed its fair value for Pos Malaysia Bhd to 52 sen (from 76 previously) on expectation of its wider FY2022F net loss of RM99 mil (from RM89 mil previously) as well as a slight net loss of RM10 mil in FY2023F (from net profit of RM3mil previously) to mainly account for lower mail and parcel volumes.

Nevertheless, the research house which reiterated the national postal delivery service provider’s “hold” rating, expects Pos Malaysia to return to profitability in FY2024F with a net profit of RM48 mil on improved profit margins following the implementation of various cost-saving initiatives such as workforce reduction and consolidation of its mail and parcel networks.

“Recall that the company’s 1Q FY22 postal revenue decreased by 15% year-on-year (yoy) in tandem with a drop in parcel volume,” the AmBank Research pointed out in a company update.

“(This is) mainly due to (i) consumers’ purchasing trend shifting from online transactions to brick-and-mortar shopping amid easing of movement restrictions; (ii) major e-commerce players leveraging on their insourced delivery capabilities; and (iii) international players pursuing penetration strategies to capture higher market share.”

Despite the lower revenue year-on-year (yoy), Pos Malaysia’s postal segment recorded a narrower 1Q FY2022 pre-tax loss of RM36 mil which represents a 24% yoy improvement from 1Q FY2021 as a result of lower transportation and delivery costs alongside reduced staff expenses following its recent mutual separation scheme (MSS).

“Moving forward, we foresee prospects for its parcel delivery business to remain challenging as it cannot fully capitalise on the ever-growing e-commerce transaction volume amid lower parcel volume from major e-commerce players,” projected AmBank Research.

“Meanwhile, we also gather that its mail operation continues to see a gradual decline in volume in tandem with the on-going global trend towards online and virtual communications.”

However, Pos Malaysia’s logistics and aviation segments are expected to achieve commendable recovery supported by the normalisation of operations amid the reopening of international borders.

“Potential re-rating factors include (i) higher-than-expected reduction in operating expenses as a result of various cost-saving initiatives, particularly within the postal segment; and (ii) a more robust earnings recovery within the logistics and aviation segments arising from the handling of higher goods tonnage,” added the research house. – June 29, 2022