According to investment house Kenanga Pos Malaysia’s 1QFY23 results were disappointing despite a recovery in its logistics and aviation services. Its cost-cutting measures could not counter further deterioration at its postal segment on (i) the decline in its courier volume as competitors cut prices, and (ii) accelerated insourcing of delivery function by e-commerce players. The house maintains its UNDERPERFORM call.
1QFY23 core net loss of RM26.5m came in wider than expectations, at 49% and 40% of the full-year net loss forecast and the full-year consensus loss estimate, respectively. The key variance against the house’s forecast came from the steeper-than-expected deterioration of its postal business and courier volume (as competitors undercut while e-commerce players accelerated the in-sourcing of their delivery function.
YoY, 1QFY23 revenue came in flat, dragged by waning demand for its postal service (-13%), mitigated by the recovery in logistics services (+18%), aviation (+20%), and other services (+44%). Its postal sales continued to be affected by the shifting of purchasing trend from online shopping back to bricks-and-mortar, worsened by lower demand from major e-commerce players shifting towards internal delivery capabilities (i.e. Shopee shifting toward its own Shopee Express).
Meanwhile, its logistics sales recovered strongly with the upliftment of the coal export ban imposed by the Indonesian government in January. Whereas, its aviation sales recovered on the reopening of international borders especially the re-activation of Umrah charter flights which drove in-flight catering higher. Core net loss was lower at RM26.5m (-18%) mainly due to lower operating costs (-2%) driven by effective cost savings efforts including a mutual separation scheme that started in 2021. QoQ, 1QFY23 revenue rose 3% with positive growth across the board, i.e. postal service (+1%), logistics (+3%), aviation (+5%), and others services (+14%), on reopening of economies, especially China. 1QFY23 core net loss halved on better cost absorption as volumes recovered.
As for forecasts, Kenanga widens the net loss forecast for FY23 and FY24 by 33% and 24%, respectively, to account for the deterioration of its postal business.
The house is cautious on POS due to: (i) its struggling conventional mail business which is trying to stay relevant in the digital age, and we doubt that we have seen the bottom, (ii) 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 (iii) its cost-cutting measures being insufficient to counter its weakening core business revenue.
