PosM reported a core net loss of -RM43.6m in 3QFY22 (vs 2QFY22: RM1.0m; 3QFY21: -RM43.9m), bringing 9MFY22 core net loss to -RM73.5m (vs 9MFY21: -RM148.3m). The results were below both our (-RM77.4m) and consensus (-RM63.9m) forecasts. We remain wary over its near-term recovery prospects as the competition in the last mile delivery space continues to remain intense, as evident by one of its peers ceasing operations. Our forecasts for FY22f/23f/24f are lowered to -RM86.8m/-RM8.6m/RM16.2m, as we impute a lower growth assumption for parcel volumes. Subsequent to the earnings cut, our TP is lowered to RM0.60, representing a P/B multiple of 0.65x on FY23f BVPS of RM0.92 (at -1SD below its 3Y mean of 1.17x). Reiterate HOLD on PosM.

Below expectations. PosM reported a core net loss of -RM43.6m in 3QFY22 (vs 2QFY22: RM1.0m; 3QFY21: -RM43.9m), bringing 9MFY22 core net loss to -RM73.5m (vs 9MFY21: -RM148.3m). The results came in below both our (-RM77.4m) and consensus (-RM63.9m) forecasts. 9MFY22 core net loss was arrived after adjusting for EIs (predominantly net reversal of receivables impairment) totalling -RM4.3m.

QoQ. Total revenue reported a 4.9% decline QoQ, mainly due to weaker showing in its postal (-9.1%) and others (-19.5%) segments. We believe the weaker revenue contribution in postal segment was a result of declining postal volumes, as consumer sentiment wanes. This has more than offset the revenue growth in its logistics (+9.0%) and aviation (6.9%) segment. In tandem with overall weaker revenue, core net loss also widened to -RM43.6m (vs 2QFY22: RM1.0m), as operating expenses continue to creep up for PosM.

YoY. Despite PosM’s logistics (+25.3%) and aviation (+34.4%) segments both charting strong growth YoY, overall revenue was down 8.3% as its postal segment reported a decline of 20.7%. We believe the decline in postal segment’s revenue was due to (i) a drop in parcel volumes by its contract customers, as well as (ii) consumer purchasing trend shifting from online to physical stores. Attributed to PosM’s cost optimisation efforts, core net loss only widened slightly to -RM43.6m (vs 3QFY21: -RM41.2m).

YTD. Top line recorded a 10.3% decline, mainly due to sharp decline in postal segment revenue (-18.0%). Major e-commerce players increasingly leveraging on their insourcing capabilities has resulted in lower overall parcel volumes. Logistics segment’s revenue also chalked in a 4.1% decline as it was impacted by the coal export ban imposed by the Indonesian government in early-FY22. On PBT level, postal segment saw strong improvements as losses narrowed to -RM81.6m (vs -RM164.7m SPLY), owing to effective cost optimisation efforts and improved average revenue per item. All told, core net loss narrowed to -RM73.5m (vs - RM148.3m SPLY).

Outlook. Although PosM has plans to mitigate the impact of falling parcel volumes by (i) improving overall parcel yield, and (ii) reducing transportation costs via productivity improvements, we remain wary over its recovery prospects as the competition in last mile delivery space continue to remain intense, as evident by Nationwide Express’ recent announcement to gradually cease operations. Separately, PosM and other industry players are also engaging with the regulators, hoping to impose a floor-pricing for the price per parcel, to create a more level playing field for all courier services providers.

Forecast. As we lower our parcel volume growth assumption, our forecasts for FY22/23/24 is lowered to -RM86.8m/-RM8.6m/RM16. 2m (from -RM77.4m/RM4.7m/RM32.7m previously).

Maintain HOLD, with a lower TP of RM0.60. Post earnings adjustment, our TP is marginally lowered to RM0.60 (from RM0.61). TP is derived based on a P/B multiple of 0.65x on FY23f BVPS of RM0.92 (at -1SD below its 3Y mean of 1.17x) as near term outlook remains challenging. Reiterate HOLD on PosM.

Source: Hong Leong Investment Bank Research - 22 Nov 2022