Fierce competition, lower revenue affect Pos Malaysia growth prospects

PETALING JAYA: Pos Malaysia Bhd’s growth prospects remain uncertain as its conventional mail business continues to struggle to stay relevant amid fierce competition in the local courier service sector, analysts say.

On Monday, the group posted a narrower net loss of Rm33.63mil in the third quarter of its financial year 2022 (3Q22) on the back of lower revenue of Rm492mil.

Over the nine months in 2022, the group posted a net loss of Rm69.25mil, which was 67% lower year-on-year than the net loss of Rm212.5mil it booked for the same period a year ago.

According to Hong Leong Investment Bank (HLIB) Research, Pos Malaysia’s latest 3Q22 results were below both its expectations and consensus forecasts.

While Pos Malaysia has plans to mitigate the impact of falling parcel volumes by improving overall parcel yield and reducing transportation costs via productivity improvements, the research house said “we remain wary over its near-term recovery prospects”.

This is because competition in the last mile delivery space remains fierce, as evidenced by one of Pos Malaysia’s peers, Nationwide Express, which recently announced plans to phase out its operations, according to HLIB Research in a note to clients.

Separately, Pos Malaysia and other industry players are also engaging with the regulators, hoping to impose a floor price for the price per parcel to create a more level playing field for all courier service providers.

The research house, which reiterated a “hold” call on the group, said it has lowered the parcel volume growth assumption for Pos Malaysia leading to its forecasts for FY22, FY23 and FY24 being lowered to Rm86.8mil, Rm8.6mil and Rm16.2mil, respectively.

Post-earnings adjustment, HLIB Research’s target price (TP) on the stock has been lowered marginally to 60 sen from 61 sen previously, based on the group’s near-term outlook, which is set to remain challenging.

Meanwhile, Kenanga Research concurred that Pos Malaysia’s latest quarterly results have missed market expectations.

Hence, the research house has widened its net loss forecasts for Pos Malaysia for FY22FY23 by 19% to 59%.

“We are cautious on the group due to its conventional mail business continuing to struggle to stay relevant in the digital age and we doubt that we have seen the bottom,” Kenanga Research said in its latest report.

Furthermore, the group is currently facing declining courier volume.

“This is because of tremendous competition from new players such as J&T Express and Ninja Van that undercut aggressively on rates to grow their market shares.

“Also, Pos Malaysia’s cost-cutting measures are insufficient to counter its weakening core business revenue,” it added.

The research house has maintained an “underperform” call on the stock with a lower TP of 49 sen from 55 sen previously.

The risks to its call include sector consolidation that could enable big players to control the market, better cost management, particularly for labour and fuel, while the conventional mail service remains essential for security purposes, and a faster recovery in the global economy, which would boost demand.