Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Vol m Results Review, POS Malaysia (POSM MK) Neutral (from Buy) Transport - Logistics Target Price: MYR5.60 Market Cap: USD862m Price: MYR5.29 Surprisingly Weaker Macro Risks Growth Value 6.6 6.1 5.6 POS Malaysia (POSM MK) Price Close Relative to FTSE Bursa Malaysia KLCI Index (RHS) 173 162 150 POS Malaysia s (POS) 3QFY14 results fell below our and consensus estimates. Although revenue was in line with our forecast, higher-thanexpected operating expenses squeezed earnings. The improved efficiency in its courier and landbank development units remain key catalysts. We pare down our earnings forecast and revise our FV to MYR5.60, pegged to a 18x FY15F P/E. Downgrade to NEUTRAL. 5.1 4.6 4.1 3.6 3.1 12 10 8 6 4 139 127 116 104 93 Unexpectedly weak quarter. POS 3QFY14 results were weaker than our and street estimates, with a meagre core net profit of MYR24.2m (down 53% y-o-y). Although its revenue was in line with our expectations, higher-than-expected operating expenses eroded its net profit margin, which consequently weakened its earnings. Although the courier segment s operating profit continues to chart positive growth, its mail and retail divisions weighed down overall group performance. Its management claims that the higher operating expenses in 3QFY14 were mainly due to increases in staff cost, jet fuel consumption, repair & maintenance and rental cost. The company declared an 8 sen dividend for the quarter under review. 2 Earnings revision. We trim our earnings forecast by 25% and 31% for FY14F and FY15F respectively to take into account the higher operating expenses. Source: Bloomberg Avg Turnover (MYR/USD) 4.60m/1.41m Cons. Upside (%) -11.7 Upside (%) 5.9 52-wk Price low/high (MYR) 3.44-6.00 Free float (%) 55 Shareholders (%) DRB HICOM 32.2 EPF 11.3 Aberdeen 9.3 Key catalysts moving forward. We think that investors should take note that POS still has key catalysts, which are: i) the improved efficiency in courier services could potentially drive growth further once its integrated parcel centre is completed by end-2014, ii) the potential development value of its landbank in Brickfields, Kuala Lumpur, and c) further potential value creation from its transformation plan. Downgrade to NEUTRAL, with a lower FV. Following our earnings revision, we are trimming our FV for POS to MYR5.60 (from MYR6.80), pegged to a 18x FY15F P/E. This is still lower than the 20x P/E of its regional peer, Singapore Post (SPOST SP, NR). We downgrade the stock to NEUTRAL at this juncture, but still see potential value creation arising from its transformation, which may improve its future profitability. Shariah compliant Jerry Lee 603 9207 7622 jerry.lee@rhbgroup.com Forecasts and Valuations Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total turnover (MYRm) 1,057 1,189 1,270 1,397 1,485 Reported net profit (MYRm) 78 111 151 145 168 Recurring net profit (MYRm) 103 122 150 145 168 Recurring net profit growth (%) 32.2 17.6 23.3 (3.2) 15.6 Recurring EPS (MYR) 0.19 0.23 0.28 0.27 0.31 DPS (MYR) 0.10 0.11 0.13 0.14 0.16 Recurring P/E (x) 27.5 23.4 19.0 19.6 16.9 P/BV (x) 3.37 3.16 3.00 2.79 2.57 P/CF (x) 13.0 10.2 12.9 10.9 13.6 Dividend Yield (%) 1.8 2.0 2.5 2.6 3.0 EV/EBITDA (x) 11.5 8.6 7.0 7.6 6.7 Return on average equity (%) 9.5 12.9 16.4 14.8 15.8 Net debt to equity (%) net cash net cash net cash net cash net cash Our vs consensus EPS (%) (17.6) (17.8) See important disclosures at the end of this report Powered by EFA TM Platform 1
POS Malaysia (POSM MK) Figure 1: 9MFY14 results review FYE Mar (MYRm) 3QFY13 2QFY14 3QFY14 q-o-q (%) y-o-y (%) 9MFY13 9MFY14 y-o-y (%) Comments Revenue 313.3 317.0 329.7 4.0 5.3 925.0 1,002.5 8.4 Revenue in line EBITDA 62.5 73.8 51.0 (30.9) (18.4) 192.3 202.7 5.4 EBITDA Margin (%) 20.0 23.3 15.5 20.8 20.2 Depreciation (20.1) (20.1) (20.2) 0.3 0.3 (64.8) (60.9) (6.0) EBIT 42.4 53.7 30.8 (42.6) (27.3) 127.5 141.7 11.2 EBIT Margin (%) 13.5 16.9 9.3 13.8 14.1 Interest expense 0.0 (0.3) (0.4) 44.7 nm 0.0 (0.9) nm Interest income 3.2 3.2 4.8 49.5 49.6 11.7 13.1 12.5 Associates 0.0 0.0 0.0 nm nm 0.0 0.0 nm EI 0.1 (1.2) (1.4) 20.5 nm 0.8 0.0 nm Profit before tax and zakat 45.6 55.4 33.8 (39.0) (26.0) 139.9 154.0 10.0 Margin (%) 14.6 17.5 10.2 15.1 15.4 Zakat 0.0 (0.6) (0.1) (91.5) Nm (1.8) (1.2) (36.7) Pretax profit 45.6 54.8 33.7 (38.4) (26.2) 138.1 152.8 10.6 Pretax margin (%) 14.6 17.3 10.2 10.4 15.2 Tax 6.0 (15.2) (10.9) (28.5) (282.6) (23.0) (47.3) 105.9 Tax rates were higher y- o-y Effective tax rate (%) 13.0 (27.8) (32.3) (16.4) (30.9) Minority Interest 0.1 0.7 0.0 (100.0) (100.0) (0.2) (1.2) 657.0 Net Profit 51.6 40.3 22.8 (43.3) (55.7) 118.8 105.5 (11.2) Below expectations Core Profit 51.6 41.4 24.2 (41.5) (53.0) 118.0 105.5 (10.6) Net Margin (%) 16.5 13.1 7.4 12.8 10.5 Source: Company data Figure 2: Segmental breakdown FYE Mar (MYRm) 3QFY13 2QFY14 3QFY14 q-o-q (%) y-o-y (%) 9MFY13 9MFY14 y-o-y (%) Comments Revenue -Mail 173.4 173.7 148.9 (14.3) (14.1) 524.7 550.2 4.9 Lower mail volume -Courier 89.6 89.6 130.3 45.5 45.4 236.9 277.6 17.2 Increase in volume due to higher e-commerce activities and extended service counter hours -Retail 40.3 43.5 41.4 (4.7) 2.7 128.1 129.2 0.9 - Others 9.9 10.2 20.1 96.9 103.8 35.3 45.6 29.0 Segment profit -Mail 24.5 33.5 14.3 (57.4) (41.8) 98.0 91.8 (6.3) Earnings dropped due to higher operating expenses -Courier 21.9 18.0 23.1 28.3 5.3 40.7 57.8 42.0 Continued to grow strongly -Retail (12.0) (6.6) (15.0) 127.9 25.1 (33.6) (35.8) 6.5 Mainly due to losses from Ar Rahnu, which is going through its natural gestation period. - Others 2.7 5.0 6.8 36.1 148.3 12.3 22.9 85.9 Margin (%) -Mail 14.1 19.3 9.6 18.7 16.7 -Courier 24.4 20.0 17.7 17.2 20.8 -Retail (29.6) (15.1) (36.1) (26.2) (27.7) Source: Company data See important disclosures at the end of this report 2
POS Malaysia (POSM MK) Financial Exhibits Key assumptions FY14F FY15F Mail volume growth (%) -0.5% -1.0% Courier volume growth (%) 22.0% 18.0% Staff costs increment (%) 8.0% 8.0% Jet fuel assumption (USD/barrel) 130.0 130.0 Source: RHB estimates Profit & Loss (MYRm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total turnover 1,057 1,189 1,270 1,397 1,485 Cost of sales (773) (847) (896) (1,021) (1,054) Gross profit 284 343 374 376 431 Gen & admin expenses (111) (126) (142) (144) (164) Other operating costs (58) (73) (70) (70) (74) Operating profit 115 143 162 162 192 Operating EBITDA 175 213 248 250 297 Depreciation of fixed assets (60) (70) (86) (88) (105) Operating EBIT 115 143 162 162 192 Other recurring income 14 14 11 18 19 Interest income 14 15 17 16 15 Interest expense (3) (2) (0) (0) (0) Exceptional income - net (25) (10) 1 - - Pre-tax profit 114 161 192 196 227 Taxation (36) (49) (41) (51) (59) Minority interests - - (0) - - Profit after tax & minorities 78 111 151 145 168 Reported net profit 78 111 151 145 168 Recurring net profit 103 122 150 145 168 Cash flow (MYRm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Operating profit 115 143 162 162 192 Depreciation & amortisation 60 70 86 88 105 Change in working capital 51 97 (11) 42 (49) Other operating cash flow 31 27 34 34 35 Operating cash flow 257 337 271 326 283 Interest received (14) (15) (17) (16) (15) Interest paid 3 2 0 0 0 Dividends received (0) (0) - - - Tax paid (28) (44) (33) (51) (59) Cash flow from operations 218 279 221 260 209 Capex (92) (139) (68) (335) (200) Other new investments (7) (29) - - - Other investing cash flow 44 99 34 16 15 Cash flow from investing activities (55) (69) (34) (319) (185) Dividends paid (52) (57) (103) (73) (84) Increase in debt (15) (35) (0) - - Other financing cash flow (6) 2 39 - - Cash flow from financing activities (73) (90) (64) (73) (84) Cash at beginning of period 331 396 544 666 534 Total cash generated 90 120 122 (132) (60) Implied cash at end of period 425 545 667 534 474 See important disclosures at the end of this report 3
POS Malaysia (POSM MK) Financial Exhibits Balance Sheet (MYRm) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Total cash and equivalents 425 544 666 534 473 Inventories 9 10 12 11 12 Accounts receivable 181 153 174 228 233 Other current assets 95 15 10 10 10 Total current assets 710 722 862 783 729 Total investments 119 149 145 145 145 Tangible fixed assets 566 622 604 851 946 Intangible assets 5 5 5 5 5 Total other assets 0 - - - - Total non-current assets 690 776 753 1,000 1,095 Total assets 1,399 1,498 1,615 1,783 1,824 Accounts payable 490 565 606 701 658 Other current liabilities 29 18 25 25 25 Total current liabilities 519 582 631 726 683 Other liabilities 38 18 37 37 37 Total non-current liabilities 38 18 37 37 37 Total liabilities 557 600 668 763 720 Share capital 269 269 269 269 269 Retained earnings reserve 573 629 678 751 835 Other reserves 0 0 0 0 0 Shareholders' equity 842 898 947 1,020 1,103 Minority interests - - 1 1 1 Other equity - - (0) (0) (0) Total equity 842 898 948 1,020 1,104 Total liabilities & equity 1,399 1,498 1,615 1,783 1,824 Key Ratios (MYR) Mar-11 Mar-12 Mar-13 Mar-14F Mar-15F Revenue growth (%) 13.6 12.5 6.8 10.0 6.3 Operating profit growth (%) 30.2 24.4 13.4 0.2 18.5 Net profit growth (%) 4.9 42.9 35.4 (3.8) 15.6 EPS growth (%) 4.9 42.9 35.4 (3.8) 15.6 Bv per share growth (%) 4.4 6.6 5.5 7.7 8.2 Operating margin (%) 10.8 12.0 12.7 11.6 12.9 Net profit margin (%) 7.4 9.4 11.9 10.4 11.3 Return on average assets (%) 5.8 7.8 9.7 8.5 9.3 Return on average equity (%) 9.5 12.9 16.4 14.8 15.8 Net debt to equity (%) (50.4) (60.6) (70.3) (52.3) (42.9) DPS 0.10 0.11 0.13 0.14 0.16 Recurrent cash flow per share 0.41 0.52 0.41 0.48 0.39 See important disclosures at the end of this report 4
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 POS Malaysia (POSM MK) SWOT Analysis Has the largest postal network in Malaysia Solid balance sheet with a huge cash pile and low debts Competition from big international courier companies Able to leverage on other companies within DRB- HICOM group to expand its business Its vast network would be a plus should it expand into logistics services High staff costs Vulnerable to escalating jet fuel prices Dependent on authorities to approve postage rates P/E (x) vs EPS growth P/BV (x) vs ROAE 45 70% 4.0 18% 40 35 30 25 20 15 10 5 60% 50% 40% 30% 20% 10% 0% -10% 3.5 3.0 2.5 2.0 1.5 1.0 0.5 16% 14% 11% 9% 7% 5% 2% 0-20% 0.0 0% P/E (x) (lhs) EPS growth (rhs) P/B (x) (lhs) Return on average equity (rhs) Company Profile POS Malaysia is Malaysia's exclusive mail services provider. See important disclosures at the end of this report 5
3.53 4.12 NR 3.52 3.50 4.03 4.33 4.45 4.49 4.14 5.00 5.20 6.00 6.30 6.10 6.80 POS Malaysia (POSM MK) Recommendation Chart 6.6 6.1 5.6 5.1 4.6 4.1 3.6 3.1 2.6 2.1 Recommendations & Target Price Price Close 1.6 Feb-09 May-10 Sep-11 Dec-12 Buy Neutral Sell Trading Buy Take Profit Not Rated Source: RHB estimates, Bloomberg Date Recommendation Target Price Price 2013-12-13 Buy 6.80 5.62 2013-09-25 Buy 6.10 5.28 2013-08-19 Buy 6.30 5.28 2013-07-04 Buy 6.00 4.81 2013-05-21 Buy 5.20 4.63 2013-05-21 Buy 5.20 4.63 2013-04-10 Buy 5.00 4.35 2013-02-26 Buy 4.14 3.57 2013-02-22 Buy 4.14 3.52 2012-05-24 Buy 4.14 2.70 Source : RHB estimates, Bloomberg See important disclosures at the end of this report 6
RHB Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage Disclosure & Disclaimer All research is based on material compiled from data considered to be reliable at the time of writing, but RHB does not make any representation or warranty, express or implied, as to its accuracy, completeness or correctness. No part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. This report is general in nature and has been prepared for information purposes only. It is intended for circulation to the clients of RHB and its related companies. Any recommendation contained in this report does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This report is for the information of addressees only and is not to be taken in substitution for the exercise of judgment by addressees, who should obtain separate legal or financial advice to independently evaluate the particular investments and strategies. This report may further consist of, whether in whole or in part, summaries, research, compilations, extracts or analysis that has been prepared by RHB s strategic, joint venture and/or business partners. No representation or warranty (express or implied) is given as to the accuracy or completeness of such information and accordingly investors should make their own informed decisions before relying on the same. RHB, its affiliates and related companies, their respective directors, associates, connected parties and/or employees may own or have positions in securities of the company(ies) covered in this research report or any securities related thereto, and may from time to time add to, or dispose off, or may be materially interested in any such securities. Further, RHB, its affiliates and related companies do and seek to do business with the company(ies) covered in this research report and may from time to time act as market maker or have assumed an underwriting commitment in securities of such company(ies), may sell them or buy them from customers on a principal basis and may also perform or seek to perform significant investment banking, advisory or underwriting services for or relating to such company(ies), as well as solicit such investment, advisory or other services from any entity mentioned in this research report. RHB and its employees and/or agents do not accept any liability, be it directly, indirectly or consequential losses, loss of profits or damages that may arise from any reliance based on this report or further communication given in relation to this report, including where such losses, loss of profits or damages are alleged to have arisen due to the contents of such report or communication being perceived as defamatory in nature. The term RHB shall denote where applicable, the relevant entity distributing the report in the particular jurisdiction mentioned specifically herein below and shall refer to RHB Research Institute Sdn Bhd, its holding company, affiliates, subsidiaries and related companies. All Rights Reserved. This report is for the use of intended recipients only and may not be reproduced, distributed or published for any purpose without prior consent of RHB and RHB accepts no liability whatsoever for the actions of third parties in this respect. Malaysia This report is published and distributed in Malaysia by RHB Research Institute Sdn Bhd (233327-M), Level 11, Tower One, RHB Centre, Jalan Tun Razak, 50400 Kuala Lumpur, a wholly-owned subsidiary of RHB Investment Bank Berhad (RHBIB), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Singapore This report is published and distributed in Singapore by DMG & Partners Research Pte Ltd (Reg. No. 200808705N), a wholly-owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group) and OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB, which in turn is a whollyowned subsidiary of RHB Capital Berhad). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd may have received compensation from the company covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. As of 18 February 2014, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd do not have proprietary positions in the securities covered in this report, except for: a) - As of 18 February 2014, none of the analysts who covered the securities in this report has an interest in such securities, except for: a) - Special Distribution by RHB Where the research report is produced by an RHB entity (excluding DMG & Partners Research Pte Ltd) and distributed in Singapore, it is only distributed to "Institutional Investors", "Expert Investors" or "Accredited Investors" as defined in the Securities and Futures Act, CAP. 289 of Singapore. If you are not an "Institutional Investor", "Expert Investor" or "Accredited Investor", this research report is not intended for you and you should disregard this research report in its entirety. In respect of any matters arising from, or in connection with this research report, you are to contact our Singapore Office, DMG & Partners Securities Pte Ltd Hong Kong This report is published and distributed in Hong Kong by RHB OSK Securities Hong Kong Limited ( RHBSHK ) (formerly known as OSK Securities Hong Kong Limited), a subsidiary of OSK Investment Bank Berhad, Malaysia which have since merged into RHB Investment Bank Berhad (the merged entity is referred to as RHBIB ), which in turn is a wholly-owned subsidiary of RHB Capital Berhad. 7
RHBSHK, RHBIB and/or other affiliates may beneficially own a total of 1% or more of any class of common equity securities of the subject company. RHBSHK, RHBIB and/or other affiliates may, within the past 12 months, have received compensation and/or within the next 3 months seek to obtain compensation for investment banking services from the subject company. Risk Disclosure Statements The prices of securities fluctuate, sometimes dramatically. The price of a security may move up or down, and may become valueless. It is as likely that losses will be incurred rather than profit made as a result of buying and selling securities. Past performance is not a guide to future performance. RHBSHK does not maintain a predetermined schedule for publication of research and will not necessarily update this report Indonesia This report is published and distributed in Indonesia by PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Thailand This report is published and distributed in Thailand by RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL), a subsidiary of OSK Investment Bank Berhad, Malaysia, which have since merged into RHB Investment Bank Berhad, which in turn is a wholly-owned subsidiary of RHB Capital Berhad. Other Jurisdictions In any other jurisdictions, this report is intended to be distributed to qualified, accredited and professional investors, in compliance with the law and regulations of the jurisdictions. DMG & Partners Research Guide to Investment Ratings Kuala Lumpur Hong Kong Singapore Malaysia Research Office RHB Research Institute Sdn Bhd Level 11, Tower One, RHB Centre Jalan Tun Razak Kuala Lumpur Malaysia Tel : +(60) 3 9280 2185 Fax : +(60) 3 9284 8693 RHB OSK Securities Hong Kong Ltd. (formerly known as OSK Securities Hong Kong Ltd.) 12 th Floor World-Wide House 19 Des Voeux Road Central, Hong Kong Tel : +(852) 2525 1118 Fax : +(852) 2810 0908 DMG & Partners Securities Pte. Ltd. 10 Collyer Quay #09-08 Ocean Financial Centre Singapore 049315 Tel : +(65) 6533 1818 Fax : +(65) 6532 6211 Jakarta Shanghai Phnom Penh PT RHB OSK Securities Indonesia (formerly known as PT OSK Nusadana Securities Indonesia) Plaza CIMB Niaga 14th Floor Jl. Jend. Sudirman Kav.25 Jakarta Selatan 12920, Indonesia Tel : +(6221) 2598 6888 Fax : +(6221) 2598 6777 RHB OSK (China) Investment Advisory Co. Ltd. (formerly known as OSK (China) Investment Advisory Co. Ltd.) Suite 4005, CITIC Square 1168 Nanjing West Road Shanghai 20041 China Tel : +(8621) 6288 9611 Fax : +(8621) 6288 9633 Bangkok RHB OSK Indochina Securities Limited (formerly known as OSK Indochina Securities Limited) No. 1-3, Street 271 Sangkat Toeuk Thla, Khan Sen Sok Phnom Penh Cambodia Tel: +(855) 23 969 161 Fax: +(855) 23 969 171 RHB OSK Securities (Thailand) PCL (formerly known as OSK Securities (Thailand) PCL) 10th Floor, Sathorn Square Office Tower 98, North Sathorn Road,Silom Bangrak, Bangkok 10500 Thailand Tel: +(66) 2 862 9999 Fax : +(66) 2 108 0999 8