An increased demand for courier services for the second half of this year is expected to benefit Pos Malaysia Bhd’s turnaround efforts following the ease of the movement control order, RHB Research said.
“Evident signs of a profitability flow-through from the recent surge in courier volumes alongside additional cost base reductions should bode well for the group’s 2H20 earnings turnaround prospects following the easing of the MCO,” RHB analyst Lester Liew said in a note today.
Liew has maintained a buy with a target price of RM1.10 or a 25% upside as he anticipated “some positive read-throughs” from the upcoming second quarter (2Q20) results despite expecting a slightly wide core net loss due to the MCO.
The MCO had “adversely impacted” Pos’ aviation and logistics arms, said Liew, namely lower flights and automotive volumes. “But the postal segment is expected to register narrower losses QoQ, supported by record-high courier volumes which should partially offset the affected mail and retail services during the MCO period,” he added.
Liew is projecting a 46% quarter-on-quarter surge in average daily parcels to 500,000 in 2Q20 for its courier business, “albeit likely lower in terms of revenue growth due to the shift in sales mix towards business-to-consumer volumes.”
Pos’ outlook for the second half of this financial year appeared promising as June’s courier volume remained high at 400,000/day (1Q20: 343,000). Mailing and cross-border shipments were also “approaching pre-Covid-19 levels,” Liew said.
While a U-shaped recovery beckoned for Pos as its aviation segment is expected to face headwinds, logistics and postal segments are expected to do better.
“Its core postal segment to swing back into profitability from 3Q20, as the group would be able to fully realise the benefits of its commercial mail tariff hikes given the resumption in business activities,” Liew said.
Key risks to Liew’s call include larger-than-expected mail volume declines, weaker-than-expected parcel ASPs and higher-than-expected operating costs.
Pos shares hovered at 88 sen at the midday break today giving the company a market capitalisation of RM688.84 mil.
