Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on May 24, 2019

Pos Malaysia Bhd
(May 23, RM1.36)
Maintain underperform with a lower target price of RM1.30:
Pos Malaysia recorded a core net loss of RM126.1 million in its financial year 2019 (FY19), below our and consensus net loss estimates of RM5 million and RM29.6 million respectively. The variance to our estimate was due to weaker-than-expected performance from the company’s postal services segment. As expected, no interim dividend was declared in this fourth quarter of FY19 (4QFY19), with a final dividend only expected in July.

 

Year-on-year, FY19 pre-tax profit plunged from RM117.3 million to a pre-tax loss of RM158.4 million due to widening losses from the company’s mail segment and impairment charges of RM39.6 million from the loss of goodwill in Pos Logistics Bhd. This brought FY19 core net loss to RM126.1 million — excluding RM39.6 million goodwill impairment — compared to a net profit of RM93.3 million in FY18. The loss was attributed to losses from the mail segment due to continuing double-digit contraction in mail volume and bill payments, reflecting the increasing substitution of letters with electronics media. The impairment of goodwill in Pos Logistics was attributed to below-expectation performance due to competitive market conditions.

Quarter-on-quarter, 4QFY19 core losses widened to RM101.5 million (excluding RM39.6 million goodwill impairment) from RM13 million in 3QFY19 due to: (i) losses in courier (from making profit to a loss of RM70 million), and (ii) logistics and aviation posting a loss of RM4.1 million from a profit of RM12.1mil in 3QFY19.

We believe Pos Malaysia is suffering from an environment of elevated operating expenditure at this juncture. Intensifying competition coupled with continued expansion efforts have led to stagnating margins, thus causing profit deterioration despite volume and revenue growth. Meanwhile, given the company’s inability to close down post offices, coupled with its unionised workforce and losses in its postal services segment, losses are expected to continue widening moving forward.

Due to the company’s weak set of results, we forecast a RM15 million loss in FY20 after accounting for higher losses in its postal services. — Kenanga Research, May 23

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