Investment Highlights

• We downgrade our recommendation on Pos Malaysia (Pos) to SELL from UNDERWEIGHT as we lower FY20F– FY21F forecasts by 35–46% after updating our balance sheet forecasts and in anticipation of weaker courier volume due to competition between industry players. Our fair value is reduced to RM1.34/share (WACC: 7.3%, terminal growth rate: 1.5%), from RM1.65/share previously.

• Pos recorded its third and largest quarterly core net loss to date in 4QFY19 of RM98mil, bringing FY19 to a core net loss of RM123mil. This is after stripping off one-off net losses mainly due to the RM40mil impairment of goodwill for Pos Logistics amid competitive market conditions.

• The FY19 results came in much lower compared with our FY projected loss of RM35mil and consensus’ projected loss of RM26mil. The deviation from forecasts was attributed to the deterioration in performance across all of its major segments and higher operating expenses and other expenses from the impairment loss on goodwill.

• We now recommend a SELL on Pos as it continues to face problems of cost inefficiency for its postal segment and structural issues that challenge efforts to boost earnings from the courier segment. We await more details on the company’s results and outlook in an upcoming analyst briefing.

Source: AmInvest Research - 23 May 2019