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Tuesday, September 20, 2016

Pos Malaysia surges on upgrade, strong earnings

Monday, 19 September 2016 | MYT 11:46 AM
Pos Malaysia surges on upgrade, strong earnings

KUALA LUMPUR: Shares of Pos Malaysia Bhd surged to the highest since late November 2015 as investors were attracted to the strong earnings outlook, possible hike in tariff and an upgrade by Hong Leong Investment Bank (HLIB) Research.

At 11.26am, Pos rose 23 sen to RM3.63. There were 1.29 million shares done.

The FBM KLCI was up 0.95 of point to 1,653.94. Turnover was 452.82 million shares values at RM434.66mil. There were 271 gainers, 314 losers and 332 counters unchanged.

HLIB Research upgraded the stock to Buy from Hold previously based on higher target price of RM3.87 pegged to higher CY17 20 times price-to-earnings ratio (PER), which is higher than its three-year average PER.

“Higher multiple is justified due to (i) prospects of tariff hike (ii) potential synergies from KLAS-KLB acquisition and (iii) group’s wide network to benefit from imminent e-commerce boom,” it said.

The positives are e-commerce growth opportunities, leveraging on DRB-Hicom Group and newly acquired Konsortium Logistics; and strong balance sheet.

HLIB Research said the improvement in business offerings for Pos has been seen since Datuk Mohd Shukrie took the helm as CEO. Service variety has been widened with Prepaid Dropbox & Ezibox being added to their outlets.

The group plans to add 50 units of Ezibox in multiple locations to upgrade service level. Other service enhancements that were recently added include Drive-thru POS outlets and mobile app for tracking to improve user experience.

“The KLAS deal announced earlier by the group is at its final stages of completion. Pos has just commenced discussion with KLAS management team on its future business directions. KLAS businesses will soon be rebranded to represent Pos’ identity.

“Meanwhile, the group is still contemplating on its capacity expansion options given that KLAS is already operating at full capacity. Currently there are 3 options: (i) capacity expansion for KLAS at KLIA but is limited due to space constraint (ii) total rebuilt of old LCCT terminal to be leased (highest capex but location is the most strategic) and (iii) POS’ own space beside LCCT which involves higher towing costs. Total expected capex for the expansion is circa RM60mil to RM70mil which could be easily funded from the group’s cash pile.

“The business case for KLB acquisition is its B2B logistics function which complements its current B2C-focused last mile services. In contrast to KLAS, surplus capacity is still present in KLB and the Pos management is looking at several ways to reduce costs (through higher warehouse ownership which is cheaper).“Rumours are rife that the tariff hike for mail business is being considered by the authorities. Documents have been submitted and the company is currently awaiting authorities’ approval. That aside, the group is also reviewing its courier business rates as they are currently below market average. Both would have direct positive impact on the group’s earnings once it comes into fruition. We have not imputed any of these until further confirmation,” it said.

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