HwangDBS Vickers Research downgrades Pos Malaysia to Hold

by **Cals** Wed 05 Feb 2014, 10:54

HwangDBS Vickers Research downgrades Pos Malaysia to Hold
Business & Markets 2014
Written by Ahmad Naqib Idris Adzman Shah of theedgemalaysia.com
Wednesday, 05 February 2014 10:24

KUALA LUMPUR (Feb 5): HwangDBS Vickers Research (HDBSVR) has downgraded Pos Malaysia Bhd to a Hold at RM5.54, with an unchanged target price (TP) of RM5.60 despite a significant gain in share price in the past 18 months.

“Pos Malaysia has gained 124% in 18 months as the market priced in the group’s robust earnings outlook and business synergies with DRB-Hicom.

“But this has reduced upside to our SOP-based TP, leading us to downgrade the stock to Hold,” said the research house.

HDBSVR said that there could be cost pressures arising from the hike in electricity tariff, higher staff costs and inflation due to higher prices of fuel and consumer goods.

The research house explained further that a 5% increase in staff costs would reduce earnings before interest and tax (EBIT) by 7%, while a 5% hike in transportations costs would cut EBIT by 3%.

“To offset the cost pressures, the group needs to see a larger pick-up in courier and non-postal revenues,” said the research house adding that non-postal services account for 21% of revenues, with stronger growth expected going forward.

The courier operation is expected to be the key revenue driver for the next three years, supported by the expansion of the group's PosLaju counter and kiosk network.

“The new outlets will expand the group’s touch points and could offer more products and services in the future,” said the research house.