Sell call for Pos Malaysia as near-term catalysts absent


KUCHING: Despite the group’s expansion plants for the third quarter of financial year 2017 (3QFY17), analysts believe that near-term catalysts are absent for Pos Malaysia Bhd (Pos Malaysia).

According to the research arm of Hong Leong Investment Bank Bhd (HLIB Research), Pos Malaysia said it has enhanced the group’s e-commerce service availability and quality through deploying cash on delivery (COD) and Credit Card on Delivery (focusing on Lazada customers) for parcel delivery.

“The initiative has started its pilot phase in February 2017,” HLIB Research said in a post-briefing note. “The group has also developed its first Digital Business Centre, co-operated with Shopee, at Bangi by March 2017 catering for e-commerce customers conducting its business activities.”

The group also has plans to consolidate its Pos Mel and Pos Laju operations to better utilise Pos Malaysia’s resources.

The research arm further noted that RM100 million is expected to be spent on this hub (which will expand the group’s sorting capacity to 300,000 parcels per day from 200,000 parcels per day).

“The facility would be located at Shah Alam with completion scheduled to be in end- 2018,” it added.

As for updates on the LCCT redevelopment, HLIB Research said the group plans to redevelop the old LCCT into a Digital Free Trade Zone (DFTZ).

“This area would be developed into a regional hub for e-commerce providing warehousing and distribution facilities catering for global and regional e-commerce online market places,” the research arm said, adding that Pos Malaysia is expected to bring in a joint venture (JV) partner on this project to manage the group’s project risk.

On the Tenaga Nasional Bhd (TNB) coal project, HLIB Research highlighted that the contract is already running with both of the ships utilised for the contract being chartered-in-vessels.

The research arm further highlighted that plans to execute the contract using own vessels are still intact and the group has already receved Letter of Offer from local bank for US dollar onshore loan facility for vessel purchase.

“The two vessels are expected to cost the group US$36 million in total,” it said.

On a side note, HLIB Research pointed out that full quarter contribution of Pos Aviation (formerly known as KLAS) has been seen in 3QFY17.

The research arm said management had updated that while Pos Malaysia’s cargo handling and airline catering business remains profitable, the group’s logistics division (KLB) is still in the red stemming mainly from roll-on roll-off (RORO) and challenging haulage businesses.

It added that excluding intercompany loan interest, Pos Aviation is expected to contribute profit before tax (PBT) of RM30 million to RM40 million per annum (pa) to the group.

Overall, while the group’s expansion plans will ensure long-term growth, HLIB Research insists that near term catalysts are absent for the company.

“Long gestation period is also required for the group to show significant growth in earnings from all its growth initiatives,” the research arm said.

While HLIB Research was still positive on Pos Malaysia’s long term prospects for e-commerce driven courier business, recent share price surge has, in the research arm’s opinion, run ahead of the earnings growth.

“Project execution risks remain for its multiple expansion plans,” the research arm said.