Pos Malaysia Bhd
(June 27, RM5.35)
Maintain buy with target price of RM6.17: According to a report in a daily on June 26, Pos Malaysia and Datasonic Group Bhd have joined forces in their bid to secure the concession to manage the impending fuel subsidy rationalisation programme from the government. The unconfirmed report stated that the two companies have submitted a proposal via Fuelsubs House Sdn Bhd — a company they have formed as the vehicle to manage the programme.

It is understood that Pos Malaysia is expected to manage subsidised fuel applications from Malaysians through its extensive network of more than 700 post offices nationwide.

Should the two companies win the concession, it would imply earnings accretion for Pos Malaysia. We believe the initial capital expenditure may be minimal as it probably only needs to install new software for the registration process. It has invested millions of ringgit over the past two years to upgrade its information technology system. If we assume that owners of 50% of the 23.7 million registered vehicles (as at December 2013, based on data from the transport ministry) apply for the subsidy at post offices and a RM1 fee per application is charged, it may lead to a one-off earnings increase of RM11.9 million in financial year 2015 ending March 31 (FY15F) to RM173 million.

While the potential impact on earnings seems modest in the immediate term, what is important is the possibility of a long-term recurring income stream.

For now, we keep our earnings forecasts as the bidding process has yet to conclude and we are awaiting further clarification from its management. We peg the stock to a higher price-earnings ratio (PER) of 19.3 times (from 17 times), +2 standard deviation from its three-year historical trading band, but still at a significant 20% discount to Singapore Post’s estimated forward PER of 24 times.

Our higher target PER is premised on higher peer valuations and to reflect the upside to earnings from the potential tie-up with Datasonic. — RHB Research, June 27

This article first appeared in The Edge Financial Daily, on June 30, 2014.