Hot Stock Pos Malaysia falls after reporting lower than expected profit

by **Cals** Fri 22 Aug 2014, 12:41

Hot Stock Pos Malaysia falls after reporting lower than expected profit

Business & Markets 2014

Written by Liew Jia Teng of theedgemalaysia.com

Friday, 22 August 2014 11:57

KUALA LUMPUR (Aug 22): Shares of Pos Malaysia Bhd fell 4.4% this morning after the national postal services provider reported its first quarter profit, which fell below estimates.

The lower-than-expected earnings has prompted analysts to cut their profit forecast for the group, as well as their target price for the stock.

At 10.56am, Pos Malaysia traded at RM4.94, down 23sen, or 4.4%, with 349, 000 shares done. The counter, which was traded between RM4.92 to RM5.14 earlier, was the second-biggest decliner on Bursa Malaysia.

AmResearch Sdn Bhd highlighted that Pos Malaysia’s core net profit of RM29 million in the first quarter ended June 30, 2014 (1Q FY15), came in below expectations as it accounted for only 16% of the research house’s previous full-year estimate and 17% of consensus’ estimate.

In a note today, AmResearch lowered its earnings forecast for Pos Malaysia for the year ending March 31, 2015 (FY15) to FY17 by 7% to 11%.

AmResearch, which maintained its “hold” rating on Pos Malaysia shares, has also lowered its fair value for the stock to RM5.20, down from RM5.50.

Yesterday, Pos Malaysia said its net profit declined 37.9% to RM27.11 million in 1Q FY15, down from RM43.69 million a year ago, mainly due to higher expenses by RM37.2 million which were incurred from staff and transportation costs.

The postal services company said the drop in net profit was also due to fixed mail segment operating cost, despite the lower revenue as compared to previous year’s cyclical high from the volume contributed by the 2013 general election.

Pos Malaysia’s revenue, however, grew 3.6% to RM368.8 million in 1Q FY15, up from RM355.82 million a year before, thanks to its courier segment, vide innovative customer-centric solutions, are yielding positive outcome.

Today, AmResearch noted that Pos Malaysia’s revenue in the retail segment’s revenue increased by 10%, following increased contributions from insurance products and its Ar-Rahnu services.

However, on average, the group’s 100 Ar-Rahnu outlets are yet to be profitable given the average age of the outlets is only about 6-8 months. An outlet could take up to 18 months to break even, said the AmResearch analyst.

Hence, in the near term, AmResearch continue to expect the courier segment to be the key earnings driver for Pos Malaysia, as it captures a considerable market share in high yielding businesses, especially cross border e-commerce transactions that is gaining traction.

Meanwhile, AllianceDBS Research Sdn Bhd said Pos Malaysia’s net profit was below the research house’s expectation as it accounted for only 15% of initial full-year estimate of RM185.3 million.

As the fuel prices could continue to rise in the near future, AllianceDBS Research cut earnings forecast for Pos Malaysia in FY15, FY16 and FY17 by 7.7%, 7.5% and 11.4%, respectively, after inputting higher staff and transportation cost assumptions.

AllianceDBS Research also maintained its “hold” rating on Pos Malaysia with a lower target price of RM4.80, from RM5.25.