Good start to FY14 for Pos Malaysia

by **Cals** Tue 20 Aug 2013, 11:47

Good start to FY14 for Pos Malaysia
Business & Markets 2013
Written by Hwang DBS Vickers Research
Tuesday, 20 August 2013 11:43

POS MALAYSIA BHD []
(Aug 19, RM5.28)
Maintain buy at RM5.25 with a target price of RM5.60: Pos Malaysia's net profit for the first quarter ending June 30 of the 2014 financial year (1QFY14) grew 19% year-on-year (y-o-y) to RM43.7 million on the back of a 14% increase in revenue to RM355.8 million. 1QFY14 earnings are within our expectations as they represent 25% of our forecast net profit for full FY14.

The stronger y-o-y earnings, mainly from the group's core businesses, were largely due to: (i) increase in the mail segment's revenue from prepaid mail, registered mail, admail, direct mail and corporate mail; and (ii) increase in revenue in the courier segment from on-demand customers and prepaid box/envelopes.

Pos Malaysia's Ar-Rahnu business also registered higher revenue, mainly consisting of higher commissions received.

1QFY14 earnings before interest and tax (ebit) margin improved to 18.3% (1QFY13: 16.6%), underpinned by lower support and transfer costs. However, the margin was partly impacted by other operating expenses which we believe was mainly attributed to higher staff costs from annual salary increments.

1QFY14 net cash increased by 2% quarter-on-quarter to RM1.23 per share. Pos Malaysia recently declared a final gross dividend per share (DPS) of 9.5 sen (ex-date: Sept 11) which brings FY13 net DPS to 13.1 sen (2.5% net yield).

We believe Pos Malaysia will continue to extract more synergies from DRB-HICOM BHD [] (which has a 32% stake in Pos Malaysia) and its group of companies which could translate into potentially higher earnings for Pos Malaysia.

Among the synergies to be reaped are: (i) land/property development collaboration; (ii) integration of products and services into Pos Malaysia's outlets; and (iii) collaboration with DRB-Hicom subsidiaries, KL Airport Services Sdn Bhd and PROTON HOLDINGS BHD [], on logistics management.

We maintain our "buy" recommendation on Pos Malaysia with RM5.60 target price. The company still offers decent FY14 to FY16F return on equity of 18% to 20% and net yields of 3% to 4% backed by its strong balance sheet and highly free cash flow generating business. — Hwang DBS Vickers Research, Aug 19

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

This article first appeared in The Edge Financial Daily, on August 20, 2013.