Pos Malaysia records strong earnings

by **Cals** Tue 26 Nov 2013, 16:20

Business & Markets 2013

Written by AmResearch

Tuesday, 26 November 2013 10:41

Pos Malaysia Bhd
(Nov 25, RM5.71)
Maintain buy at RM5.62 with a fair value of RM6.02: We reaffirm our “buy” recommendation on Pos Malaysia with a fair value of RM6.02, based on our discounted cash flow valuation.

For the second quarter of 2014 financial year (2QFY14) ended Sept 30, it recorded a net profit of RM40.3 million (-8% quarter-on-quarter [q-o-q], +32% year-on-year [y-o-y]), bringing its total first half (1HFY14) earnings to RM83.9 million (+25% y-o-y). This was in line with our expectations, making up 47% of our and 49% of consensus’full-year estimates.

It charted 1HFY14 net earnings growth of 25% on the back of stronger performance across all its business segments and lower depreciation/amortisation charges, despite a hike in all of its major operating expenses such as staff, transport and raw material costs.

As expected, the courier segment continues to be the key growth area for Pos Malaysia, recording 54% growth in operating profit, mainly driven by a boost in online transactions which resulted in a rise in on-demand customer revenue, as well as increased contract customers, parcels and prepaid items.

Its mail segment recorded an increase of 11% in its operating profit due to higher revenue for prepaid, registered mail, admail, direct mail, international mail and corporate mail, coupled with lower staff costs, support costs and transfer costs. Its traditional franking and ordinary mail continued to contract by 6.4% and 5.4% respectively.

Its Ar-Rahnu services also appeared to contribute positively to the retail segment. Lower depreciation expenses as well as higher storage fees from its Ar-Rahnu services led to a lower operating loss in its retail segment.

Going forward, we continue to be positive on its courier segment and expect it to continue charting strong growth as it attempts to capture a bigger market share for its higher yielding businesses, especially its e-commerce business.

Its five-year strategic plan, which sets out to diversify its business away from the declining postal business, is well on track, in our opinion. Year-to-date revenue contribution from the mail segment declined to 55%, from 57% a year ago. Revenue contribution from the courier segment, on the other hand, picked up from 24% to 26%.

Pos Malaysia declared an interim dividend of eight sen per share, similar to FY13’s. We forecast gross dividend per share of 19.2 sen and 21.5 sen for FY14 and FY15 respectively — translating into gross dividend yields of 3.7% and 4.1%.

We remain optimistic on Pos Malaysia due to: (i) the strong growth in the courier segment that would drive earnings in the near to medium term; (ii) its aggressive strategy to diversify its business away from the declining mail segment; and (iii) its strong balance sheet. The stock currently trades at a price-earnings ratio of 17 times, at parity with Singapore Post’s. — AmResearch, Nov 25

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This article first appeared in The Edge Financial Daily, on November 26, 2013.