Pos cruising without close rivals (4634)

By HwangDBS Vickers Research

Buy

Target price: RM4.60

POS Malaysia, the national postal services provider, is currently delivering to more than eight million addresses and has over 1,000 outlets/access points. Its mail and courier segments provide recurring cash flow and are expected to post five-year sales compound annual growth rate (CAGR) for its financial year ended Dec 31, 2009 (FY09) to FY14 forecast of 6% and 15% respectively.

With DRB-Hicom's entrance, Pos has more room to reinvent and improve itself by offering new services while continuing to capitalise on its mass user base. Currently, Pos is in the second phase of its five-year transformation plan to turn itself into a one-stop solutions centre.

One of the new innovations is the Ar-Rahnu (pawn-broking) services with Bank Muamalat, which could contribute at least RM65mil to FY14 revenue given 75,000 customers throughout the 500 branches across the country. Other synergies include offering more insurance products, shared banking services and vehicle rental system.

Pos is estimated to directly own 30 parcels of land (excluding that of the Federal Land Commissioner) throughout Malaysia which span over 20ha and is valued at RM85mil. This includes a prime location in Brickfields, Kuala Lumpur.

Despite expected lower year-on-year volume for the mail segment due to its revised rates and increasing use of e-mail, the segment is forecast to record RM678mil and RM690.5mil sales for FY13 and FY14 respectively, due to continuous volume support from parcels and business mail.

The Government has revised domestic postage tariffs, effective from July 1, 2010. In general, the price for domestic postage stamps for standard mail weighing up to 20 grams was revised from 30 sen to 60 sen while for mail up to 50 grams was revised from 40 sen to 70 sen.

The postal tariffs, which are government-controlled rates, could go through further revision if operational costs continue to increase, particularly wages and fuel costs.

However, we are not expecting any tariff revisions in the near term as the tariffs were revised only once in the past 20 years; potentially indicating the Government's intention to maintain stable pricing for domestic postal customers.

Currently, there is still no close listed competitors in terms of operational size and user base. For its courier segment, PosLaju is facing competition from private courier companies (FedEx, TNT, DHL etc) as well as listed companies (GD Express Bhd Nationwide Express Courier Services Bhd) in Malaysia.

However, PosLaju still possesses an edge due to its lower pricing and wide availability of counters and offices across the country.

On domestic courier services for next-day arrival, PosLaju charges RM3.50 to RM7 for the first 500 grams, compared with private courier companies whose charges range from RM15 to RM60 for the same parcel and delivery time.

Riding on its competitive advantages, Pos' courier segment has recorded three-year sales CAGR of 21% (FY09 to FY12).