Investment Highlights
We upgrade our recommendation to HOLD from SELL on Pos Malaysia (Pos) with a higher FV of RM1.34 pegged to an FY20F PB of 0.64x (from RM1.27 based on the same 0.64x FY20F PB previously), in line with its historical average. We now project Pos to register a smaller net loss of RM9.6mil in FY20F and a net profit of RM9.8mil in FY21F vs. net losses of RM69.1mil and RM45.5mil previously, following an earnings boost from the latest development.
Pos has obtained the green light from the government to raise postage rates for commercial mail by 160% to RM1.30 (from RM0.50), registered mail by 41% to RM3.10 (from RM2.20) and small parcels below 2kg by 30% (Exhibit 1), effective 1 Feb 2020. Pos has guided that commercial mail makes up 95% of its total domestic mail (including 71% coming from the main users, i.e. financial institutions).
Nevertheless, we believe the earnings boost from the higher postages will be partially eroded by: (1) the hastened digitalization of physical mail, resulting in accelerated mail volume contraction (we now project the mail volume to decline by 18% and 5% in FY20 and FY 21F respectively vs. 10% and 5% previously); and (2) more aggressive opex to improve the quality of postal service.
Meanwhile, Pos will also raise its international postage rates up to 30%. This will help to offset the rising last-mile delivery cost for small parcels of below 2kg, by up to 30– 210%.
We are neutral on Pos. We also believe that the main challenge for the company is its cost inefficiency as a result of a unionized workforce and its inability to significantly rationalize its extensive network of post offices. Meanwhile, the courier segment continues to face intense competition, resulting in margin squeeze.
Source: AmInvest Research - 29 Jan 2020
https://klse.i3investor.com/blogs/AmInvestResearch/2020-01-29-story-h1482961035-Pos_Malaysia_Green_light_to_raise_commercial_postage_by_160.jsp
