Positive outlook for Pos Malaysia as Covid-19 drives courier demand

The postal company’s longer-term prospects are positive, given an envisaged boost in e-commerce transactions

By AFIQ AZIZ / Pic BLOOMBERG

POS Malaysia Bhd’s long-term future looks bright as the Covid-19 pandemic and the Movement Control Order (MCO) continues to spur acceleration in courier deliveries and usage of the group’s digital services.

Although margins for the group’s courier segment are unlikely to excite in the near term due to pricing discounts, its longer-term prospects are positive, given an envisaged boost in e-commerce transactions.

“Given its extensive network coverage and sorting capacity, we believe the group is also well positioned to capture greater market share — this is amid a blanket increase in parcel volumes nationwide,” RHB Investment Bank Bhd (RHB IB) wrote in a recent note.

It said the lockdown has seemingly given rise to a surge in demand for PosLaju deliveries, accompanied by a spike in usage of Pos Online digital services.

“We believe the acceleration in courier parcel volumes will persist beyond the MCO, supported by government initiatives to promote e-commerce among the small and medium enterprises and with a six-month discount offer on small-sized parcel deliveries,” it added.

The research house maintained a ‘Buy’ call on Pos Malaysia, with a higher target price of RM1.10 versus 75 sen previously.

However, downside risks to its call include a spike in mail volume declines, stiffening courier pricing competition and higher than expected operating costs.

The deadly Covid-19 has greatly popularised online shopping, as various iterations of lockdowns implemented globally coupled with pandemic fears are driving consumers to make purchases online.

As a result, delivery and courier companies worldwide are seeing unprecedented demand. Amazon. com Inc last month said it hired 175,000 additional people during the Covid-19 pandemic, while

Tesco Stores (M) Sdn Bhd said it’s looking to add over 600 new workers due to “a huge surge of orders via Tesco online” since the MCO began.

For the first quarter ending June 30, 2020 (1QFY21), Pos Malaysia is expected to record negative earnings due to disruptions during the MCO, which began on March 18 and has been extended to June 9.

“The bulk of operations affected during the MCO. These include Pos Malaysia’s over-the-counter postal and retail services, alongside flight restrictions impacting its aviation and international shipments, and business closures for its end-customers,” RHB IB said.

The network courier company’s 2QFY21 earnings will be hit as well, owing to the extended MCO period.

However, the impact will be partially offset by a 30% to 40% fall in fuel prices — transportation costs constitute a circa 25% of the group’s total cost base.

Subsequently, the firm is projected to record a loss of RM63 million in the financial year ending March 31, 2021 (FY21), mainly due to revenue losses from the extended MCO period.

“However, we raise our forecast FY21 to FY22 earnings by 2% to 12% respectively, after factoring in higher expected courier volumes while partially offset by a quicker decline in mail volumes due to the underlying shift in industry trends,” RHB IB said.

“A return to profitability in FY21 is premised on revenue rebounds and margins improvement.”

Shares of Pos Malaysia surged 2.54% or three sen to close at RM1.01 last Friday, giving the group a market capitalisation of RM790.61 million. Local markets were closed yesterday for a replace- ment public holiday for Nuzul Al-Quran on Sunday.