POS Malaysia Bhd has clearly benefited from the growth in e-commerce, as reflected in the results for its first quarter ended June 30, 2016 (1QFY2017). Net profit grew 40.06% year on year to RM31.84 million.
The rally in the company’s share price — up 68.14% from a one-year low of RM2.04 in March to RM3.43 last Friday — was also an indication of the market’s optimism that it could sustain its earnings growth. Year to date, the stock has gained 23.38% but compared with a year ago, it has declined 5.11%.
At its current level, the stock is trading at a trailing price-earnings ratio (PER) of 25.6 times compared with a 10-year average of about 16 times.
Some quarters, however, doubt that Pos Malaysia can maintain its growth momentum. Their scepticism stems from the company’s inconsistent results in the last few quarters, including the profitability of its courier segment, which is expected to gain from the booming online business.
Though the group recorded a net profit of RM14.35 million in 4QFY2016, the courier segment contributed only RM3.97 million to profit before tax (PBT). In stark contrast, the segment’s PBT grow about six times quarter on quarter to RM23.66 million in 1QFY2017. Its gross margin also fluctuated between a low of 2.68% and high of 30.85% in the last nine quarters.
Hong Leong Investment Bank analyst Lim Sin Kiat points out that the weakness in snail mail volume remains a drag on Pos Malaysia’s profitability. The erratic earnings of its retail and other segments are also a concern, he adds.
“There are plenty of growth opportunities in the e-commerce boom but Pos Malaysia continued to be affected by the weakness of conventional mail volume while the transshipment business is relatively seasonal and has low margins,” says Lim, who has a “hold” recommendation on the company and a target price of RM3.01.
However, he believes the injection of DRB-Hicom Bhd’s logistics assets, such as KL Airport Services Sdn Bhd (KLAS) and a parcel of freehold industrial land in Shah Alam, into Pos Malaysia bodes well for its plan to cater for the growth in e-commerce in the long term, although it could see a temporary dilution in earnings.
A fund manager opines that Pos Malaysia has positioned itself to ride the e-commerce wave but a lot depends on the execution by management.
He cites labour and transport costs as one of the key risks to Pos Malaysia’s growth story.
“In FY2016, staff and transport cost made up 51% and 24% of total operating expenses respectively. Any increase in salaries or a staff union hike as well as an increase in oil prices could see higher operational expenses,” he says.
Pos Malaysia group CEO Datuk Mohd Shukrie Mohd Salleh, however, remains positive on the company’s outlook, highlighting the fact that the courier segment has recorded a consistent growth of 20% to 30% in revenue in the last couple of years. “We are confident we will see a 20% growth in revenue in the next two to three years,” he tells The Edge.
The courier segment accounted for 41.92% of the group’s revenue in 1QFY2017 compared with only 33% in the last two financial years. Postal services contributed 54.45% to revenue.
Shukrie believes the courier business will surpass Pos Malaysia’s conventional mailing services next year. The former was the largest contributor to operating profit in 1QFY2017, accounting for 59.9%.
The company has four business sections: postal services, courier, international and others. The retail segment became a part of postal services this financial year.
Pos Malaysia has launched new services such as Pos Laju EziBox, an e-commerce hub and Pos Laju Prepaid Dropbox to cater for the growing e-commerce trend. “These new services will enable customers to post prepaid parcels without the need to queue up at the outlets,” says Shukrie.
Pos Laju Prepaid Dropbox allows customers to drop off their parcels at self-service automated machines in a safe and convenient manner. There is also a 24/7 service for the public to pick up parcels at Pos Laju Extra EziBox.
According to Shukrie, FY2017 will be one of the group’s most aggressive financial years in terms of expansion. “We plan to open 13 new Pos Laju outlets in this financial year. The board has approved slightly over RM100 million for the expansion,” he says.
Though it is too early to say whether Pos Malaysia can maintain its growth momentum, having positioned itself as a full-fledged logistics solution provider — coupled with a rebound in its earnings and backed by a strong balance sheet — it is not surprising that it has captured the attention of investors.
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