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Surge of interest in  DRBHCOM 1619 DRB-HICOM BERHAD, Pos Malaysia sparks speculation

KUALA LUMPUR (Aug 25): Two hardly traded stocks — DRB Hicom Bhd, the flagship of tycoon Tan Sri Syed Mokhtar Al-Bukhary, and its loss-making unit Pos Malaysia Bhd — saw a spike of trading interest on Wednesday (Aug 24).

DRB-Hicom’s share price shot up to RM1.62 before it closed at a four-month high of RM1.46, up 13% or 17 sen. Trading volume swelled to 16.01 million shares, the highest seen since June 2020.

Coincidentally, there was a similar surge in interest in Pos Malaysia, which pushed its share price to 68.5 sen. At the closing bell, the stock, which released its quarterly earnings on Monday, was up 4.5 sen or 7.6% at 64 sen, after 3.9 million shares changed hands.

Syed Mokhtar controls 56% of DRB-Hicom, which in turn owns 53.49% stake in Pos Malaysia.

The market capitalisation of Pos Malaysia, which owns the largest branch network nationwide, has shrunk to just RM501 million at its closing price of 64 sen. While the group’s operation has been bleeding losses over the past four financial years, its share price is substantially below its net asset per share of RM1.

The postal group’s cash pile amounted to RM199 million as at June 30, against total borrowings of RM723.48 million, of which current liabilities were at RM443 million.

The big leap in the stocks' share prices has sparked speculation that a corporate exercise involving the two companies could be in the pipeline.

Given the tough operating landscape with stiff competition in courier services and shrinking snail mail volume, the postal group's share price has been on the decline since 2018. It slid to 55 sen in June.

Bloomberg data shows that other substantial shareholdings in Pos Malaysia include Kumpulan Wang Persaraan Diperbadankan's (KWAP's) 5.3% stake, and Employees Provident Fund (EPF)’s 1.2%.

EPF is also the second largest shareholder in DRB-Hicom with a 10.8% stake, followed by Lembaga Tabung Haji’s 3.5%.

DRB-Hicom's emergence as a substantial shareholder in Pos Malaysia can be traced back to over a decade ago in April 2011, when it acquired a 32.21% stake from Khazanah Nasional Bhd for RM622.79 million or RM3.60 per share, after winning a bidding process.

About five years later in September 2016, DRB-Hicom completed the injection of its logistics assets KL Airport Services Sdn Bhd (KLAS), and a freehold industrial land into Pos Malaysia via a RM835 million share deal, raising its shareholding to 53.5%.

Pos Malaysia’s net loss narrowed substantially in the second quarter ended June 30, 2022 (2QFY22) to RM5.25 million, from RM121.84 million, despite a 3% drop in revenue to RM517.26 million from RM533.89 million.

The postal group attributed the improved performance to its ongoing efforts to optimise operating costs at its postal businesses, while its aviation segment improved after the reopening of international borders.

For the first half of this year (1HFY22), the group’s net loss narrowed by 79% to RM35.62 million from RM168.63 million in the previous corresponding period, despite revenue falling by 11.3% to RM1.0 billion from RM1.13 billion.

In a statement on Monday, Pos Malaysia chief executive officer Charles Brewer said the group is on the right track to achieve a better performance.

"I am extremely proud of every Pos Malaysia employee, and for their continued dedication, passion and commitment.

“We are cautiously optimistic that our financial performance for FY2022 will show continued improvement, as compared to FY2021. We will continue to focus on delivering a profitable parcel and retail business, transforming the core operation, optimising for margin-led businesses and ensuring we are well-placed for a better future,” he said.

Nonetheless, the group cautioned that 2HFY22 would be challenging, with ongoing economic uncertainties and changing consumer behaviour.

Although Pos Malaysia’s transformation programme has started to bear fruit, Hong Leong Investment Bank has said it remained wary about the group’s recovery prospects, given the challenging business environment arising from tough competition in the last mile delivery space.

“Case in point, Pos Malaysia has cited a decline in parcel volume from its contract customers. The stiff competition is also exacerbated by major e-commerce players increasingly leveraging on their insource delivery capabilities,” said the investment bank in a research note on Tuesday.

Hong Leong kept its “hold” rating on Pos Malaysia, with a target price (TP) of 61 sen.

Kenanga Research, which maintained its “market perform” call on Pos Malaysia and a TP of 55 sen, likewise noted that the postal group faces “tremendous” competition from new players such as J&T Express and Ninja Van that undercut aggressively on rates to expand their market shares.

“While the conventional mail volume of Pos Malaysia declined by an average of 13% annually between FY14 to FY21, we doubt that we have seen the bottom,” said the research house in a note on Tuesday.

There are five research houses covering Pos Malaysia, according to Bloomberg data, and all of them have placed it on either “market perform”, “hold” or “neutral”, with TPs ranging from 52 sen to 67 sen.

DRB-Hicom has six analysts covering it, with four “buy” ratings and two “hold”, with TP ranging between RM1.35 and RM2.00.


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