Pos Malaysia on track to chart decent growth

Business & Markets 2013
Written by AmResearch
Friday, 06 December 2013 10:27
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Pos Malaysia Bhd
(Dec 5, RM5.80)
Downgrade to hold with higher fair value of RM6.16: We downgrade Pos
Malaysia from “buy” to “hold”, but raise our fair value to RM6.16 per share
(from RM6.02 previously), as we roll forward our discounted cash flow valuation
and tweak our capital expenditure assumption.
Our rating downgrade is due to limited upside as its share price has soared
near our fair value. Since our re-initiation of Pos Malaysia in September, the
stock has appreciated 13% to Nov 4’s closing price of RM5.84.
It closed at its all-time high of RM6 on Nov 29.
Based on its last traded price, the stock is trading at financial year 2014 (FY14)
forecast price-earnings ratio (PER) of 17 times, or around one standard
deviation above its three-year mean level.
At an analyst briefing on Nov 4, we gathered that mail volume had remained
relatively stable year-on-year (y-o-y) in the first half (1H) ended Sept 30 mainly
due to significant contributions from election-related activities. Excluding the
one-off election contributions, mail volume would have contracted slightly.
Management reaffirmed that its courier segment remained relatively robust and
is on track to charting decent growth. Its 1HFY14 y-o-y courier revenue growth
of 20% was mainly driven by a rise in e-commerce transactions, as well as
higher sales volume of its prepaid parcel boxes. The segment, which has
traditionally depended on contract clients, is now seeing a larger contribution
from e-commerce and walk-in customers.
Its five-year Strategic Plan also appears to be well on track. To date, Pos Malaysia has increased its Ar-Rahnu presence at over 90
outlets, and expects to achieve its target of 100 outlets by the end of FY14. We understand that Ar-Rahnu typically undergoes a gestation
period of about six to 12 months (depending on the location of the outlets) before contributing positively to Pos Malaysia’s bottom line.
No indication has been given as to whether the remaining S108 tax credit balance will be utilised for a special dividend payout this year.
The tax credit expires on Dec 31 this year.
Management also emphasised its cash requirements for capital expenditure (estimated at RM300 million this year), and for its Ar-Rahnu
operations which is cash intensive for the disbursements. Key rerating catalyst for Pos Malaysia will be the securing of merger and
acquisition deals that will fast track its earnings growth. — AmResearch, Dec 5