Pos Malaysia’s 9-month result has missed expectations says Kenanga which tracks the stock, the national postal agency registered another quarterly loss as its conventional mail business struggled to stay relevant, dragged further by declining courier volume on aggressive pricing practices and accelerated in-sourcing by e-commerce players.
Kenanga has widened its net loss forecasts for FY22-23 by 19-59%, and has maintained the counter as Underperform. The 9MFY22 core net loss of RM57.2m missed both our and consensus full-year net loss estimates of RM66.3m and RM63.9m. The key variance against the forecast came from further weakening of its postal business from waning courier volume on aggressive pricing practices and accelerated in-sourcing of e-commerce players.
The fall of 10% was dragged by waning demand for its postal (-18%) and logistics (-4%) services while partially mitigated by a recovery in its aviation (+25%) and others services (+15%). Postal sales were affected by the shifting of purchasing trend from online shopping back to bricks-and-mortar shopping since the start of the endemic phase, worsened by lower demand from major e-commerce players shifting towards internal delivery capabilities (i.e. Shopee shifting toward its own Shopee Express).
Meanwhile, logistics sales were in a seasonally lower trend and suffered an adverse impact in its marine business from the coal export ban imposed by the Indonesian government in January 2022. On the other hand, stronger aviation sales recovered on the re-opening of international borders especially the re-activation of umrah charter flights which drove in-flight catering higher.
Core net loss more than halved to RM57.2m mainly due to lower operating costs (-14%) driven by effective cost savings efforts including the Mutual Separation Scheme (MSS) exercise last year. QoQ, 3QFY22 revenue fell 5% in the absence of festivities in the highly competitive business environment resulting in a slowdown in postal (- 9%), logistics (-11%), and others services (-19%). This was partially mitigated by sustained recovery from aviation (+52%) on the reopening of the economy. 3QFY22 core net loss expanded more than doubled due to poor cost absorption (+5%) on reduced volumes.
As for the forecast, Kenanga is cautious about POS due to its conventional mail business continuing to struggle to stay relevant in the digital age, and doubts that it has seen the bottom, of its declining courier volume as incumbent POS has to face tremendous competition from new players such as J&T Express and Ninja Van that undercut aggressively on rates to grow their market shares, and its cost-cutting measures that are insufficient to counter its weakening core business revenue.
