Postage hike positive for Pos Malaysia’s earnings

Difficult times: The main challenge for the company is its cost inefficiency as a result of a unionised workforce, as well as its inability to significantly rationalise its extensive network of post offices, according to AmInvestment Bank Research. — Bernama

PETALING JAYA: Pos Malaysia Bhd, which posted its sixth consecutive loss-making quarter, may see its earnings lifted this year on the back of the company’s recent postage hike.

The company raised postage rates for registered mails, commercial mails and small parcels since Feb 1,2020.

Kenanga Research in a report said the upward revision would be positive for Pos Malaysia.

The research house, however, said it would have preferred for the tariff to be increased based on a schedule or formula that’s indexed to inflation, or based on certain quantitative or even qualitative key performance indicators, as opposed to a one-time adjustment.

“The key risk of this one-time adjustment includes the inability of Pos Malaysia to fully accommodate its social and commercial responsibilities, especially if the hike in commercial postal rates potentially causes mail volumes to deteriorate even further from current levels.

“Meanwhile, given Pos Malaysia’s inability to close down post offices, coupled with its unionised workforce and losses in its postal services segment turning the postal division around will remain challenging.”

Kenanga Research said it had, however, pencilled in a lower loss for 2020 following the postal hike.

AmInvestment Bank Research said the main challenge for the company is its cost inefficiency as a result of a unionised workforce, as well as its inability to significantly rationalise its extensive network of post offices.“Meanwhile, the courier segment continues to face intense competition, resulting in margin squeeze. However, at the current share price and valuations, we believe the market has priced in the bad news.”

Pos Malaysia reported a wider-than-expected core net loss of RM97.5mil for the nine-months period ended December 2019.

The earnings miss is attributed to an isolated malware attack incident during the last quarter that disrupted its courier businesses, said RHB Research in a report.

“This led to the loss of two months of parcel and bulk mail volumes, thereby resulting in a normalised courier segment loss of RM4.6mil.

“Other non-recurring costs recognised during the quarter include a RM93.9mil impairment charge on its logistics and aviation assets, as well as a RM28.6mil provision in aircraft re-delivery costs.

“Dividend payment for the financial year would be evaluated in April.”

The research house said the Covid-19 outbreak impact appears manageable.

“We gather that the Covid-19 outbreak has not materially impacted Pos Malaysia thus far, in view of its businesses’ scale and diversification.

Barring any risks from the exacerbation of Covid-19, we expect it to be business as usual across its operating segments.”

AmInvestment Bank Research said the company’s postal services revenue was down by 11%, dragged by the continuous structural decline in traditional mail volume (estimated to be at 14% year-on-year), largely due to electronic substitution.

“The international segment’s revenue was held up by a revision in pricing, which has been in place since April 2019. The logistics segment saw higher revenue, mainly contributed by haulage and automotive logistics, ” it said.

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