Results

In-Line – Reported 2Q13 core net profit of RM29.6m, bringing 1H13 to RM66.1m, accounting for 48.3% of our and 48.2% of consensus full-year estimates.

Dividend

Announced interim gross dividend of 8.0 sen less 25% tax or net dividend of 6.0 sen.

Highlights

YoY. Revenue increased by 2.7% to RM300.4m mainly on stronger contribution from Courier and Retail segments, while core earnings increased by 9.9%, on the back of substantial margin improvement in Courier, as the segment benefit from better economy of scales.

QoQ. Core profits declined by 18.7%, mainly due to higher operational costs (depreciation and amortization, and staff costs) and lower other operating income.

YTD. 6M13 core net profit rose by 28.2% to RM66.1m, after POS enjoyed better economy of scales from higher sales volume in Courier and Others business segments (partially offsets by lower Mail segment earnings and higher Retail losses) and lower effective tax expenses.

Risks

(1) Inability to raise postal tariff; (2) Skyrocketing crude oil price; (3) New services/products fail to mitigate declining mail volume; and (4) Sharper-than-expected decline in mail volume.

Rating

BUY

• Positives – (1) Limited downside to its current share price; (2) Plenty of growth opportunities; (3) Strong balance sheet; (4) Strong earnings growth; and (5) Potential land conversion.
• Negatives – (1) Huge staff numbers; (2) Highly regulated industry; and (3) Fortunes are tied to crude oil price.

Valuation

Maintained BUY with unchanged TP of RM3.20, pending further update with management. We continue to like Pos Malaysia for: (1) The potential synergistic effect arising from more tie-ups with DRB-Hicom; (2) Its undemanding valuation (discount to Singapore Post’s P/E); and (3) Relatively generous dividend payout.

Source: Hong Leong Investment Bank Research - 27 Nov 2012