Pos Malaysia Berhad's core net loss widened 96% year-on-year (YoY) to RM40.4 million in the first quarter of its financial year 2025 (1QFY25), in line with expectations, according to Kenanga Investment Bank. While signs of recovery were visible in its postal and logistics segments, higher operational costs and maintenance expenses continued to weigh heavily on the national postal operator.

Kenanga has maintained its UNDERPERFORM rating and a discounted cash flow (DCF)-derived target price (TP) of RM0.15, citing structural weaknesses and intense competition in the courier space.

Mixed Performance Across Segments

Pos Malaysia's 1QFY25 revenue fell 5% YoY, largely due to a 4% decline in postal service revenue and a steep 24% drop in logistics revenue. However, aviation revenue grew marginally by 1%, buoyed by the strong performance in the air freight sector and increased demand for umrah charter flights, which also supported in-flight catering operations.

The postal division remained pressured by a slowdown in online shopping and growing reliance on in-house delivery services by major e-commerce platforms such as Shopee Express. Traditional mail volumes fell 9%, but a silver lining emerged in parcel volumes, which rose 13%—reflecting service-led gains in both business-to-business (B2B) and business-to-consumer (B2C) segments.

Meanwhile, logistics struggled with an unfavourable operating environment. The segment was also impacted by marine asset maintenance and a temporary downturn in the automotive sector.

Quarterly Recovery, But Structural Challenges Remain

On a quarter-on-quarter (QoQ) basis, revenue improved by 2%, led by an 8% rise in postal services revenue thanks to stronger parcel demand. However, logistics contracted 9%, and aviation dipped 3% due to seasonally lower umrah charter rates.

Despite the challenging environment, Pos Malaysia managed to narrow its core net loss by 41% compared to the previous quarter. Improved parcel volumes—offering better margins than traditional postal services—helped mitigate losses.

Outlook: Slow Turnaround, High Competition

Kenanga remains cautious on the outlook for Pos Malaysia, highlighting three key concerns:

1. Struggling conventional mail business amid accelerating digital adoption.

2. Highly competitive courier market with aggressive pricing strategies from players like J&T Express and Ninja Van.

3. Cost reduction measures that have yet to fully offset declining revenues in core business areas.

While the company's venture into "POS Shop" convenience stores—transforming existing post office outlets—marks a shift towards diversification, Kenanga notes the uncertain gestation period for these outlets to reach operational efficiency. As of FY24, 50 such stores had been launched.

Investment Call: Underperform Maintained

With limited near-term catalysts and stiff competition in a fast-evolving logistics and postal landscape, Kenanga sees little upside for Pos Malaysia. The firm has kept its FY25 forecasts unchanged and maintains a DCF-derived TP of RM0.15, with no ESG-related adjustments.