By FocusM
RHB Research has maintained its buy call on Pos Malaysia Bhd with a lower target price (TP) of 75 sen from RM1.70 due to the onset of Covid-19 which is expected to have an impact across its core businesses.
“Our discounted cash flow-derived TP is cut to 75 sen following our earnings cut and upward revision of weighted average cost of capital to 10.5% from 9.7% to factor in the heightened macroeconomic risks.
“Still, we hold on to our call following the recent tumble in share price, with the stock now trading at a steeply discounted 0.3x forward P/BV (-1.7SD to historical mean),” said the research house in a note on March 24.
The research house viewed that these are not reflective of Pos Malaysia’s turnaround prospects. The downside risks include acceleration in mail volume declines and higher-than-expected operating costs.
It expects Pos Malaysia to register a sluggish 1H20 on the protracted Covid-19 pandemic, which has disrupted e-commerce cross-border shipments and regional air travel.
“That, coupled with the government’s Movement Control Order (MCO), is seen as directly
impacting its postal services, courier, and aviation operations. Conversely, the impact should be softened by the near-term plunge in fuel costs,” it said.
However, its earnings forecasts have been cut by 31%-65% on account of lower revenue uplift from the postal rate hike, and Covid-19 and the MCO disruptions across Pos Malaysia’s operating segments. They are partially offset by lower operating expenditure on fuel cost savings and operational efficiency gains.
“We continue to expect Pos Malaysia to register a FY20 earnings turnaround. This is given the recent plunge in fuel prices, which are seen as mitigating a fall-off in non-postal revenue over the near term.”
Pos Malaysia’s share price opened 6.19% higher at 56.5 sen before the midday break on March 24, giving it a market capitalisation of RM469.67 mil. – March 24, 2020
