A normalised quarter for Pos Malaysia

by **Cals** Tue 26 Aug 2014, 09:28

Business & Markets 2014

Written by RHB Research

Monday, 25 August 2014 09:41

Pos Malaysia Bhd
(Aug 22, RM4.97)
Maintain buy with a target price of RM5.70: Pos Malaysia’s core net profit for the first quarter ended June of financial year 2015 (1QFY15) of RM29 million (-36% year-on-year [y-o-y]) made up 17% of our 16% of consensus’ full-year estimates. We deem this largely in line with expectations, as 4Q (its strongest quarter) typically makes up 30% to 40% of its full-year earnings.

The y-o-y earnings decline was mainly due to: (i) a drop in mail volume due to the absence of a one-off general election catalyst; (ii) a higher cost base due to additional headcount added in 3QFY14 and more international transshipments; and (iii) higher interest expense incurred at its Ar Rahnu business via short-term borrowings.

Pos Malaysia’s key focus on growth remained intact with its courier arm continuing to chart double-digit profit and revenue growth of 23% and 21% y-o-y respectively. Its retail business, led by Ar Rahnu, posted a revenue growth of 9.6% y-o-y, while its segmental profit improved on enhanced operations.

As Pos Malaysia is still undergoing a business transformation, we expect its earnings to be volatile quarter-on-quarter but on track to grow on a y-o-y basis. Given its solid balance sheet, we believe Pos Malaysia will be able to weather this transition period while its potential land bank development could be a rerating catalyst. In addition, its collaboration with Datasonic Group (“buy”, target price: RM2.50) to bid for a fuel subsidy management project could potentially generate a one-off income for the group and help offset its declining mail business, should the consortium win the bid.

We trim our FY15/FY16F earnings forecasts by 0% to 2% after updating the audited numbers. We peg Pos Malaysia’s target price-earnings ratio at 18 times from 19.3 times, at a greater discount of 25% from 20% against Singapore Post’s 24 times to reflect Pos Malaysia’s quarterly earnings volatility. We lower our target price to RM5.70 (from MYR6.17). Maintain “buy”. — RHB Research, Aug 22

[You must be registered and logged in to see this image.]

[size]

This article first appeared in The Edge Financial Daily, on August 25, 2014.[/size]