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Pos Malaysia Bhd
(Nov 21, RM4.89)
Maintain “underperform” with a lower target price (TP) of RM4.44:
The first half of financial year 2015 (1HFY15) net profit of RM61 million (-27% year-on-year [y-o-y]) came in below expectations, at 37% our and consensus full-year forecasts. The negative variance from our forecast is due to higher-than-expected operating cost. No dividend was declared during the quarter.

Quarter-on-quarter (q-o-q), second quarter of FY15 (2QFY15) revenue rose only 0.8% driven by courier (+5%) and retail (+49%), which more than offset lower mail (-12%). Overall revenue came in flat due to lower contribution from prepaid and franking segments, which accounted for approximately two-thirds of the total mail volume. However, the slack in mail was more than offset by retail, thanks to higher contribution from financial services, especially revenue from the 11.1% growth in insurance commissions, and boosted by the recognition of expired postal orders amounting to RM25.5 million. This brings 2QFY15 net profit to RM34million (+25% q-o-q).

Y-o-y, 1HFY15 operating expenses rose 21% y-o-y primarily due to staff and transportation costs. The higher staff cost was due to strengthening of growth segments such as PosLaju and over-the-counter financial services at post offices. The higher transportation cost was due to higher expenses relating to cross-border postal charges arising from the growth in trans-shipment business which Pos Malaysia only embarked upon in the latter half of FY14 and an increase in air freight charges relating to Universal Service Obligation under The Postal Services Act 2012. This brings 1HFY15 net profit lower by 27% to RM61 million.

Pos Malaysia is looking to grow its profitable courier and logistics segment by leveraging on its wide PosLaju network, as well as extracting further synergies from Kuala Lumpur Airport Services Sdn Bhd, a wholly-owned subsidiary of DRB-Hicom Bhd and Pos Malaysia, to provide an efficient logistic management service.

The group is also strengthening its retail segment, making it a one-stop solution centre, especially with the growth of its Islamic pawnbroking (Ar-Rahnu) business. Looking ahead, Pos Malaysia is staying on course to implementing and delivering its five-year strategic plan initiated in 2012. Currently into its second phase, the plan is to create an efficient and effective foundation that will provide the strength and stability to support revenue diversification, in line with the best practices of other successful postal organisations.

We are downgrading our FY15 and FY16 estimate net profits by 7% and 3%, respectively, taking into account the higher operating costs. Correspondingly, our TP is reduced from RM4.61 to RM4.44 based on unchanged 15 times calendar year 15 revised earnings per share of 29.6 sen. Maintain “underperform”. The risk is delays in execution of its business transformation plan. — Kenanga Research, Nov 21

Pos-Malaysia_24Nov2014_theedgemarkets

This article first appeared in The Edge Financial Daily, on November 24, 2014.

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