POSITIVE OUTLOOK: OSK Research is optimistic that Pos Malaysia will continue to report healthy growth in the January to March 2012 period and expects the positive trend to persist through to FY13.
KUCHING: Pos Malaysia Bhd’s (Pos Malaysia) improved performance in its courier and retail business as well as better than expected mail volume are strong indicators of a possible generous dividend payout for the financial year 2011 (FY11).
The positive key contributors, in addition to the group’s considerable cash pile of RM369 million (as at September 2011) were expected to be the salient points in the group’s announcement of its full-year FY11 results yesterday evening.
OSK Research Sdn Bhd (OSK Research) opined in a research note, “We expect Pos Malaysia to chalk up 15 to 20 per cent year-on-year (y-o-y) growth in revenue, earnings before interest, tax, depreciation and amortisation (EBITDA) and profit before tax (PBT) for FY11.
“We believe its core mailing division will deliver better y-o-y growth due to the earlier tariff hike and management’s hints that the decline in mail volume was not as bad as earlier expected.
“Its courier services continued to improve, with PosLaju remaining the nation’s leading courier service provider with its share of the domestic market surging from 22 per cent in June 2011 to 28 per cent in December 2011.”
The research house stuck to its forecast of 10 per cent y-o-y growth annually in this segment for FY12 owing to resilient consumer spending and route optimisation. The possibility of mergers and acquisitions involving this segment was present as it believed the group was committed to gaining an even bigger market share.
More than 300 Pos Outlets (POs) throughout the nation now provide Maybank and RHB services, with Maybank focusing on the POs in the rural areas, in line with its objective to become a community bank.
The research house gathered that over the counter (OTC) banking transactions at the POs had grown steadily and the group planned to renegotiate the commission charges with the two banks as the current fees were not so attractive compared with the higher margin insurance products handled by Pos Malaysia.
“We believe the negotiations are likely to go through and bring about higher profitability at the retail segment as margins may widen. We maintain our growth forecast of three per cent for this segment at this juncture. There may be a slight upside bias on its share price after the group announces its upcoming FY11 results.”
The new National Mail Processing Centre (MPC) in Shah Alam which commenced last November had benefited the group in terms of substantial cost savings through the level of automation rising from 10 per cent to more than 50 per cent, delivery standards improving from less than 80 per cent to 90 per cent (mail sent on time) and elimination of manual works through redeployment of 200 staff members to other divisions.
Prompted by these positive outcomes, the group intended to consolidate the existing 28 MPCs to seven or eight MPCs by FY13 to FY15. As such, OSK Research expected Pos Malaysia’s margins to expand moving forward.
Meanwhile, the group also planned to launch its new product, Direct Address Mail (DAM) service, which was popular in the developed countries, sometime in the middle of this year. It aimed to attract advertisers to channel some of their advertisement spending to DAM.
“While we see the DAM service at least helping to mitigate the impact of the decline in mail volume going forward, we do not include any potential earnings from it at this juncture, pending management’s guidance on its performance.
“Moving forward, we are optimistic that the group will continue to report healthy growth in January to March 2012 owing to strong business mail volume in relation to Bank Simpanan Nasional unit holders and Employees’ Provident Fund statements.
“We also expect the positive trend to persist through to FY13 as the group pursues measures to better manage its overhead and operating expenses through the TMP (Transformation Master Plan), which heavily emphasises effective cost management.
“Management also hinted that the potential revenue contribution from DRB-Hicom Bhd to Pos Malaysia should range from RM250 million to RM500 million, with the bulk coming from the former’s automotive business,” the research house concluded.
Noting that the dividend payout ratio for FY10 was 72 per cent for a gross dividend per share of 17.5 sen, the research house maintained the fair value at RM4.12 per share based on a sum-of-parts valuation.