This article first appeared in The Edge Financial Daily on November 23, 2018
KUALA LUMPUR: Shares in Pos Malaysia Bhd plunged by 62 sen or 19.38% yesterday to RM2.58 after the logistics group posted its first quarterly net loss in nearly a decade. The financial results were not only a negative surprise to the market, but also cast a dark cloud over the group’s future earnings.
The group yesterday saw RM485.58 million erased from its market capitalisation. It has lost as much as RM1.32 billion in market value since the start of the year.
Pos Malaysia was the top decliner on Bursa Malaysia for the day. With yesterday’s fall, the stock has come down by 39.6% or RM2.10 so far this year.
At this level, it is down by more than half from its all-time high of RM5.51 recorded on May 18, 2017.
The stock is also now trading below its consensus 12-month target price of RM2.84, based on the updated estimates of six analysts following the release of the group’s results for the second quarter ended Sept 30, 2018.
The group had reported a net loss of RM16.58 million for the quarter, compared with a net profit of RM18.83 million a year earlier.
The fall in Pos Malaysia’s share price has not made it a more attractive counter for investors. “Given the earnings uncertainty and overall negative sentiments revolving around the counter, it is very difficult to advocate a ‘buy’ call on the stock at this moment,” said an analyst who declined to be named.
Five out of seven analysts with an eye on the stock have a “sell” recommendation on Pos Malaysia, according to Bloomberg data.
AmInvestment Bank highlighted that Pos Malaysia still faces problems of cost inefficiency for its postal segment and “structural issues that challenge efforts to boost earnings” in its courier segment.
“We believe there is too much pressure on the courier segment to keep things afloat,” its analyst Al Zaquan said in a report yesterday.
AmInvest downgraded the stock to a “sell” from “underweight” and slashed its target price to RM2.48 from RM2.70 previously as it lowered earnings projections for the full year ending March 31, 2019 by 66%.
Kenanga Research was also pessimistic on Pos Malaysia’s prospects, saying that the firm is currently suffering from elevated operating expenditure, with intensifying competition and continued expansion weakening margins.
“Given Pos Malaysia’s inability to close down post offices, coupled with its unionised workforce, losses in its postal services are only expected to continue widening moving forward,” said a note from the research house yesterday.
According to Pos Malaysia, the accelerated contraction of mail volumes was the primary drag on its second-quarter financial performance. Higher operating and finance costs had also pinched profit margins, while the group’s logistics segment posted a sharp decline in contribution as one of its projects, the Refinery and Petrochemical Integrated Development Project in Pengerang, Johor, neared completion.
“It is crucial for the group’s new leadership to provide some guidance on the strategies to tackle the existing issues given its precipitous position now,” AmInvest’s Al Zaquan wrote.
Pos Malaysia group chief executive officer Syed Mohd Najib Syed Mohd Noor had said in a statement on Wednesday that the group is “mindful that there are substantial challenges in our postal services, international and logistics businesses that could dilute the results of the group if these challenges persist.”
He added that the group is working with internal and external stakeholders to implement a new sustainable universal service model in order to address the issue of declining mail volumes.