Stock Name: POS
Company Name: POS MALAYSIA BHD
Research House: INTER PACIFIC
Pos Malaysia Bhd (June 7, RM2.70)
Reiterate outperform at RM2.72 with target price of RM3.17: Our target price of RM3.17 is based on FY10 EPS (earnings per share) of 21.9 sen and PER (price-earnings ratio) of 14.5 times.
We like Pos Malaysia due to (1) its transformation plan (TMP) which is progressing well; (2) extra value-added if Pos Malaysia is able to convert some of its land/spaces to other retail usage; and (3) the continuous cost control which is yielding results through their margins.
Pos Malaysia's mail volume in 1QFY10 fell by 4.7% year-on-year (y-o-y) to 313.1 million mails due to the fall in business mail which encompasses about 91% of its total mail due to the migration from conventional mail to e-based mails.
Moving forward, we expect volume to remain depressed, expected to grow by 3.1% for FY10 and 3.9% in FY11 hurt by (1) effects of migration from conventional mail to electronic-based mails; and (2) tariff hike which will raise mailing cost. To negate the contraction mainly due to tariff hike, Pos Malaysia plans to review its discount policy to its business customers.
We take comfort from the rise of its retail revenue, up 18.7% quarter-on-quarter (q-o-q) in 1QFY10. The increase was due to a 7.4% q-o-q and 7.4% y-o-y increase in volume transacted, although revenue in 1QFY10 fell by 1.1% y-o-y partly due to government fuel revenue rebate in 1QFY09 that raised retail revenue by 19.5% y-o-y.
Through the TMP, Pos Malaysia has successfully refurbished the postal offices; introduced Pos Automated Machine (PAM); and Pos Shops which sell postal products and provide banking services.
On its operating expenditure, Pos Malaysia has reduced its staff cost by 2.5% y-o-y which accounts for 62% of its total operating cost following lower headcounts from the non-executive through natural attrition.
Total headcount after the reduction of 255 personnel is now at 15,525 personnel. Despite the reduction, its staff costs rose by 3.7% q-o-q to RM128.9 million following the annual salary increment. Also, 1QFY10 depreciation charges rose by 12.4% y-o-y due to the upgrading of its IT system. Thus, Pos Malaysia's annualised operating profit margin improved slightly to 10.0% from 9.1% in FY09.
The postal services provider is in the process of setting up Pos Laju as a separate operating entity from its mailing business. The reason being PosLaju is not regulated under the MCMC, unlike the mailing business.
By establishing a separate entity for PosLaju, it will be beneficial to Pos Malaysia by (1) increasing its revenue from its courier business following more efficiency in determining its courier price; and (2) lower license fee to the regulator estimated at RM800,000.
Pos Malaysia's capex includes the National Mail & Parcel Hub of RM200 million. Following the success of Pos-on-Wheels (PoW), it intends to add another 13 PoW to serve Sabah and Sarawak. Each PoW is expected to cost RM400,000. To recap, the PoW is to serve the rural areas without the presence of postal office.
Pos Malaysia's impairment charges of RM19.4 million on its 15% equity stake in Trasmile Group resulted in a weak 1QFY10 results. The high impairment charge was due to the implementation of FRS139 accounting standards. Prior to the implementation of FRS139, Pos Malaysia will recognise only a loss of RM5.9 million on impairment charges.
With Pos Malaysia's determination to ensure the TMP is a success, we believe the decision to purchase Transmile could take another 2-3 years as the purchase of Transmile is not in line with its TMP. Under the TMP, the logistic service will be set up as a support service. ' Inter-Pacific Research, June 7
This article appeared in The Edge Financial Daily, June 8, 2010.
Company Name: POS MALAYSIA BHD
Research House: INTER PACIFIC
Pos Malaysia Bhd (June 7, RM2.70)
Reiterate outperform at RM2.72 with target price of RM3.17: Our target price of RM3.17 is based on FY10 EPS (earnings per share) of 21.9 sen and PER (price-earnings ratio) of 14.5 times.
We like Pos Malaysia due to (1) its transformation plan (TMP) which is progressing well; (2) extra value-added if Pos Malaysia is able to convert some of its land/spaces to other retail usage; and (3) the continuous cost control which is yielding results through their margins.
Pos Malaysia's mail volume in 1QFY10 fell by 4.7% year-on-year (y-o-y) to 313.1 million mails due to the fall in business mail which encompasses about 91% of its total mail due to the migration from conventional mail to e-based mails.
Moving forward, we expect volume to remain depressed, expected to grow by 3.1% for FY10 and 3.9% in FY11 hurt by (1) effects of migration from conventional mail to electronic-based mails; and (2) tariff hike which will raise mailing cost. To negate the contraction mainly due to tariff hike, Pos Malaysia plans to review its discount policy to its business customers.
We take comfort from the rise of its retail revenue, up 18.7% quarter-on-quarter (q-o-q) in 1QFY10. The increase was due to a 7.4% q-o-q and 7.4% y-o-y increase in volume transacted, although revenue in 1QFY10 fell by 1.1% y-o-y partly due to government fuel revenue rebate in 1QFY09 that raised retail revenue by 19.5% y-o-y.
Through the TMP, Pos Malaysia has successfully refurbished the postal offices; introduced Pos Automated Machine (PAM); and Pos Shops which sell postal products and provide banking services.
On its operating expenditure, Pos Malaysia has reduced its staff cost by 2.5% y-o-y which accounts for 62% of its total operating cost following lower headcounts from the non-executive through natural attrition.
Total headcount after the reduction of 255 personnel is now at 15,525 personnel. Despite the reduction, its staff costs rose by 3.7% q-o-q to RM128.9 million following the annual salary increment. Also, 1QFY10 depreciation charges rose by 12.4% y-o-y due to the upgrading of its IT system. Thus, Pos Malaysia's annualised operating profit margin improved slightly to 10.0% from 9.1% in FY09.
The postal services provider is in the process of setting up Pos Laju as a separate operating entity from its mailing business. The reason being PosLaju is not regulated under the MCMC, unlike the mailing business.
By establishing a separate entity for PosLaju, it will be beneficial to Pos Malaysia by (1) increasing its revenue from its courier business following more efficiency in determining its courier price; and (2) lower license fee to the regulator estimated at RM800,000.
Pos Malaysia's capex includes the National Mail & Parcel Hub of RM200 million. Following the success of Pos-on-Wheels (PoW), it intends to add another 13 PoW to serve Sabah and Sarawak. Each PoW is expected to cost RM400,000. To recap, the PoW is to serve the rural areas without the presence of postal office.
Pos Malaysia's impairment charges of RM19.4 million on its 15% equity stake in Trasmile Group resulted in a weak 1QFY10 results. The high impairment charge was due to the implementation of FRS139 accounting standards. Prior to the implementation of FRS139, Pos Malaysia will recognise only a loss of RM5.9 million on impairment charges.
With Pos Malaysia's determination to ensure the TMP is a success, we believe the decision to purchase Transmile could take another 2-3 years as the purchase of Transmile is not in line with its TMP. Under the TMP, the logistic service will be set up as a support service. ' Inter-Pacific Research, June 7
This article appeared in The Edge Financial Daily, June 8, 2010.
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