Pos Malaysia Berhad’s (Pos Malaysia) 1HFY23 results were deemed disappointing by Kenanga Research as the continued deterioration in its postal segment negated the recovery in its aviation and logistics services units.
POS’s 1HFY23 core net loss of RM47.5m came in wider than expectations, at 66% and 59% of Kenanga’s full-year net loss forecast and the full-year consensus loss estimate, respectively. The key variance against their forecast came from 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,there is still no good news in the Mail Price of RM0.53 as Pos Malaysia’s 1HFY23 revenue fell 5%, dragged by waning demand for its postal service (-16%), mitigated by the recovery in logistics services (+7%), aviation (+17%), and others services (+35%).
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 in 1QFY23 with the upliftment of the coal export ban imposed by Indonesian government in January 2022, but fell short on demand for 2QFY23. Whereas, its aviation sales recovered on re-opening of international borders especially the reactivation of umrah charter flights which drove in-flight catering higher.
Consequentially, 1HFY23 core net loss was higher at RM47.5m (+24%).
QoQ, Pos Malaysia’s 2QFY23 revenue decreased by 4% with weak growth across the board except for aviation (+7%), on re-opening of economies, especially China. Specifically, postal service (-4%), logistics (-11%), and others services (-3%) were dragged by unfavourable business environment. However, 2QFY23 core net loss narrowed by 20% on better cost absorption.
Forecasts
Kenang widens their net loss forecast for FY23 and FY24 by 19% and 124%, respectively, to account for the deterioration in its postal business. They also reduces their DCF-derived TP by 7% to RM0.39 from RM0.42 based on a discount rate equivalent to a WACC of 6.5% and a terminal growth rate of 0%. There is no adjustment to their TP based on ESG given a 3-star rating as appraised by Kennaga. The research house maintain an Underperform call.
Kenanga is cautious on Pos Malaysia due to: (i) its struggling conventional mail business which is trying to stay relevant in the digital age, and Kenanga doubts that they 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 share, and (iii) its cost-cutting measures being insufficient to counter its weakening core business revenue.
