By Stephanie Jacob
Pos Malaysia Bhd has been downgraded to ‘hold’ at a higher target price of RM4.65 despite the fact that its 4Q13 core net profits came within expectations, said a report by Hong Leong Investment Bank (HLIB).
HLIB said while the postal company surpassed the research outfit’s profits forecast for 2013 and met 95.5 percent of consensus estimates, the company was still facing many risks going forward.
A key factor affecting the company’s prospects is the fact that there has been a bigger than anticipated fall in mail volume and new products and services which have been introduced to stem the decline have failed to produce results.
The matter is compounded by Pos Malaysia’s struggle to raise postal tariffs in the face of criticism from customers. Furthermore, the report highlighted that Pos Malaysia’s earnings are closely tied to the price of crude oil meaning the current high prices being seen are likely to have a negative impact on the company’s future earnings.
The national postal service also has to contend with the challenges that come with being in a highly regulated industry. Inhouse too, the company is faced with the challenge of tightening ship especially with regards to its huge number of staff, said HLIB
The research outfit also said that it believed that the market has already factored in the potential dividend payout of a RM317 million tax credit which is due to expire by the end of 2013. As such it is downgrading Pos Malaysia to ‘hold’ at a higher target price of RM4.65, up from RM3.85.
The target price is based on 15x FY14 price-earnings-ratio, which is a 2x discount to Singapore Post Ltd’s higher valuation of 17x.
Yesterday, Pos Malaysia announced a 21 percent rise in net profits, totalling RM32.49 million for its fourth quarter ending March 31, 2013. The increase was driven by its mail and courier units. The company’s full year profit also rose to RM151.31 million from RM100.58 million in the previous year.
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