Pos Malaysia upgraded on postal rate hike boost

PETALING JAYA: Pos Malaysia Bhd’s postage rate increase from Feb 1 is expected to translate into a smaller net loss for FY20 and a net profit FY21, according to AmResearch.

“We now project Pos Malaysia to register a smaller net loss of RM9.6 million in FY20F and a net profit of RM9.8 million in FY21F versus net losses of RM69.1 million and RM45.5 million previously, following an earnings boost from the latest development,” it said in a note yesterday.

With better earnings forecasts, the research house has upgraded the postal services group to “hold” from “sell” call, with a higher target price of RM1.34.

The stock gained 4 sen or 2.78% to close at RM1.48, after touching a high of RM1.60, on 13.42 million shares done yesterday.

Pos Malaysia has received the green light from the government to raise its postage rates for commercial mail by 160% to RM1.30 (from RM0.50), registered mail by 41% to RM3.10 (from RM2.20) and small parcels below 2kg by 30%.

Commercial mail makes up 95% of its total domestic mail, which includes 71% coming from the main users such as financial institutions.

It will also raise international postage rates up to 30% to help offset the rising last-mile delivery cost for small parcels of below 2kg, by 30%-210%.

AmResearch noted, however, that the earnings boost from the higher postage rates will be partially eroded by the hastened digitalisation of physical mail, resulting in accelerated mail volume contraction and more aggressive operating expenditure to improve the quality of postal services.

With regard to mail contraction, it expects mail volume to decline by 18% and 5% in FY20 and FY21 respectively compared with 10% and 5% previously.

The research house said the main challenge for Pos Malaysia is its cost inefficiency as a result of a unionised workforce and its inability to significantly rationalise its extensive network of post offices.

“Meanwhile, the courier segment continues to face intense competition, resulting in margin squeeze,” it added.

source https://www.thesundaily.my/business/pos-malaysia-upgraded-on-postal-rate-hike-boost-HG1945458