Pos Malaysia earnings to improve starting 2009
Pos Malaysia Bhd, whose share price continues to languish, is expected to register better earnings and growth beginning 2009 following its modernisation plans and the unfolding of Transmile Group Bhd’s turnaround.
The company’s share price has fallen by 33.06% since Jan 2, achieving a high of RM2.52 on Jan 11. On Wednesday, it closed at RM1.66, a three sen drop from Tuesday.
Analysts expected a stronger cash flow from Pos Malaysia following the completion of its RM200 million new mail processing centre in Shah Alam, part of the company’s modernisation plan. The centre is targeted to be operational by the first quarter of 2009.
“Going forward, we expect to see a strong cash flow from Pos Malaysia in 2009, which should register a free cash flow of over 10% during the year,” said Teoh Paul Keng, a senior analyst at HLG Research.
“Under the modernisation plan, the building in Shah Alam is to increase the automation level from 25% to 70%. They have about 3,000 staff in their existing processing centre, the new centre could reduce their manpower by more than 1,000 staff and this could earn them annual cost savings of about RM20 million,” he added.
Teoh expected Pos Malaysia’s cash flow to be more modest this year due to the capital expenditure incurred by the company in the new facility.
He said Pos Malaysia remained an attractive option for investors. “It is still a good time to invest in Pos Malaysia. At present, it is a domestic consumption play, it is also one of the most defensive plays.” HLG Research also has a buy on Pos Malaysia at RM2.50.
Teoh also said its earnings growth would most likely be flat due to the imbalance between the mail growth volume and postal tariff rates. “The mail growth volume goes up an average 3% to 5% every year, but there hasn’t been a hike in postal tariffs.”
“A postal rate revision is overdue; I think chances are high for the postal revision in the near future,” he said, reiterating views in a HLG Research report earlier this month.
In the report, the research house said a 1% increase would raise its full year FY08 earnings per share estimates for Pos Malaysia by 4%. “The easiest way for them to improve earnings is to cut labour costs, which make up 65% of the company’s overall costs,” he said.
Inter-Pacific Research Sdn Bhd analyst Fatimah Zahra said Pos Malaysia could also incur higher costs this year from the logistics side, which in turn is impacted by higher crude oil prices.
Tay Kim Yong, head of research at SJ Securities Sdn Bhd, said Pos Malaysia’s share price had been languishing, firstly due to the Transmile situation and then Pos Malaysia’s 2007 losses.
“With the Transmile turnaround, prospects for Pos Malaysia will improve too. Now that Transmile has a new management, we expect improvements at the company and the improvement of Pos Malaysia’s bottom line,” he said.
HLG Research’s Teoh said while Pos Malaysia held a small stake in Transmile (about 16% as at end December), further write-downs were expected.
According to the HLG Research report, a contributing factor would be if Transmile continued to make RM80 million annual losses on high fuel costs.
“There’s still some clarity needed on Transmile’s side, investors need to see another six to 12 months of new management cleaning up,” he added.
“According to its management, Transmile is operating as usual, its planes are still flying, so we view it positively because the company is still moving forward,” Inter-Pacific’s Fatimah said. The research house has a buy call on Pos Malaysia at a target price of RM2.55.
