Pos Malaysia on recovery track

RHB Research said Pos Malaysia’s outlook remained positive.

KUALA LUMPUR: Pos Malaysia Bhd could see better prospects for earnings turnaround as the postal delivery service provider leverages on the continued growth of the e-commerce space.

Granted, the company’s Q4FY20 results fell short of expectations due to severe business disruptions caused by positive Covid-19 cases at its major parcel processing centres.

However, RHB Research, in a report yesterday, said the situation has normalised since December 2020 and the group should pick up from where it previously left off, with the subsequent easing of the movement control order (MCO) expected to underpin its earnings turnaround in Q2FY21.

It said Pos Malaysia’s outlook remained positive.

“Notwithstanding the distorted Q4FY20, Pos Malaysia’s turnaround trajectory – seen with 9MFY20’s consecutive quarter-on-quarter improvements underpinned by postal tariff revisions and healthy growth in parcel volumes, alongside improved cost controls – still remains intact in our view.

“With its parcel hubs up and running again, the group is expected to post a marked earnings turnaround from Q2FY21, in tandem with the lifting of the MCO and easing of outbreak cases, ” the research house said.

RHB Research added that Pos Malaysia’s recovery traction is affirmed by FY20’s underlying free cash flow of RM97mil versus FY19’s net negative position.

It retained its “buy” rating on the stock with a target price of RM1.40, noting Pos Malaysia’s leading position in the parcel delivery and e-commerce space.

The group is also a potential beneficiary of any regulatory reforms supporting the domestic courier and postal industry.

While RHB Research expected Pos Malaysia’s Q1FY21 to remain slightly in the red, it said the group’s earnings weakness should be mitigated by estimated cost savings of RM24mil from the recently undertaken employee separation scheme. Meanwhile, Kenanga Research was less optimistic about Pos Malaysia’s prospects given its legacy infrastructure.

“Pos Malaysia’s inability to close down post offices, coupled with its unionised workforce, could mean profitability at its postal services segment is capped. The courier business will continue to operate in a competitive environment pressured by price and cost challenges, ” it said.

However, it pointed out that the group’s efforts to manage cost and the reinstatement of the MCO should result in an increase in online shopping and would likely have a positive impact on its courier business.

“Parcel volume is expected to be high in Q1FY21 driven by the online campaign and Chinese New Year online sales, offsetting the reduction in footfall into post offices resulting in a dip in its retail business revenue, ” Kenanga said.

It maintained its “market perform” call on Pos Malaysia with an unchanged target price of RM1 based on 10x FY21E earnings per share. The saving grace for Pos Malaysia, according to Kenanga, is its dividend yield of 4%.

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