Mainstream
Pos M’sia unlikely to shut underperforming outlets
Ng Wai Mun 
The number of counters operated by Pos Malaysia is on the rise, from 264 in the financial year ended March 2015 (FY15) to 321 in FY17
advertisement[x]

Pos Malaysia Bhd is unlikely to close some post offices anytime soon to optimise its earnings despite another set of disappointing but not unexpected results from its postal division.

A senior analyst tells FocusM that Pos Malaysia cannot easily close down post offices, especially those that are not heavily patronised.

“The number (of post offices) cannot be reduced as there is an agreement with the government. Provision of postal services is also under the purview of international postal-related agencies. Furthermore, there is a union for the postal workers,” she says.

She adds there are requirements such as having a minimum number of post offices per kilometre radius or to serve a minimum number of population per post office.

However, the analyst is unsure if the number of counters in operation is regulated. If the total number of post offices can’t be reduced, reducing the number of counters in the post offices will aid in some way towards optimising earnings.

The number of counters operated by Pos Malaysia is actually on the rise, from 264 in the financial year ended March 2015 (FY15) to 321 in FY17.

In the Q1FY18 results announcement, on top of lower revenue from its mail business, the management also attributes the postal division’s lower revenue to lower transactions from, amongst others, bill payments.

The analyst says: “Even the ‘over the counter’ transactions such as bill payments have reduced. Even if counters are not being reduced, Pos Malaysia should optimise the transaction volume conducted by each counter.”

The analyst says if Pos Malaysia is obliged to ensure the availability of postal services to the masses, the government should compensate the company as it is no longer a government department. 

Traditionally, the provision of postal-related services is a social obligation as the service is a basic necessity. As such, until today, the services are regulated by the Universal Postal Union, which is the international regulator of global postal services.

The analyst says if Pos Malaysia is obliged to ensure the availability of postal services to the masses, the government should compensate the company as it is no longer a government department. It is controlled by tycoon Tan Sri Syed Mokhtar Albukhary. She adds that if compensation is indeed being provided, Pos Malaysia’s postal division shouldn’t be recording losses.   

The Malaysian Communications and Multimedia Commission (MCMC) did not respond to FocusM’s request for clarifications on the obligation of providing postal services nationwide.

 

Two scenarios

The analyst is optimistic the postal-related losses will not be allowed to continue dragging Pos Malaysia’s earnings much longer.

She foresees two possibilities. One is the likelihood the postal assets will be transferred out to boost Pos Malaysia’s earnings but the process will involve legal and red tape issues. “This will make Pos Malaysia clean, lean and profitable. Imagine being able to take off the postal losses from Pos Malaysia’s books.”

In FY17, the postal division recorded a segmental loss of RM146 mil in stark contrast to Pos Malaysia’s overall pre-tax profit of RM131 mil.

The other possibility is the much awaited postal rate hike. Unlike other products where each price hike, in theory, will be followed by a decline in demand, she says: “I don’t think in this case, a hike in postal tariffs will affect the volume (handled negatively).”

She explains that the mail volume is basically down to the essential minimum. “Pos Malaysia handles almost one billion letters per year. If the postal rate is raised by 10 sen, it will reap an extra RM100 mil revenue per annum. Applying some simple (profit) margins of 50%, pre-tax profit, in theory, will increase by 40%.”

She says that the hypothetical example only touches on letters and has not even taken into consideration parcels.

Nonetheless, Pos Malaysia Group CEO Datuk Mohd Shukrie Mohd Salleh has previously played down the impact of a postal rate hike on Pos Malaysia’s earnings. He believes that the mail business is on the decline and any rate hike will only lower the demand for mail services further.

Based on MCMC’s Postal & Courier Service Pocket Book of Statistics 2016, the postal sector saw over 808 million letter-post items being handled domestically in 2016. The number has been dwindling over the years, from 978 million in 2013.

The number of parcels handled domestically has been fluctuating with no clear-cut trend.  For the past few years, the number of parcels handled varied between a low of 660,000 to over 1.2 million annually.

Pos Malaysia posted a commendable set of results for Q1 ended June 2017 (Q1FY18). Dissecting the results, the courier services division continues on its growth path where revenue expanded by 13% year on year to RM197 mil. The division recorded a segmental profit of RM40.8 mil.

Its traditional postal division saw its revenue shrinking by 7% to RM211 mil. The postal division’s losses worsened from RM2.4 mil in Q1FY17 to RM19 mil in Q1FY18.

 

No sign of turnaround

In a recent Kenanga Research report, analyst Steven Chan states that Pos Malaysia’s postal services segment is expected to continue running at a loss in the foreseeable future. This is on the back of its inability to close down post offices.

Pos Malaysia did not respond to FocusM’s queries for this article. 



This article first appeared in Focus Malaysia Issue 258.