10 things I learned from the 2019 Pos Malaysia AGM

Listed on Bursa Malaysia in September 2001, Pos Malaysia Berhad is Malaysia’s national postal service provider with a network of more than 3,500 touchpoints and 250 self-service terminals — the largest in the country.

However, the structural decline in traditional mail volume, coupled with high fixed costs relating to the universal service obligation of postal mail services, have dragged Pos Malaysia profits down, reporting its biggest-ever net loss of RM165.7 million for the financial year ended 31 March 2019 (FY2019).

I attended Pos Malaysia’s 2019 AGM to learn more about management’s strategies to mitigate these issues:

1. Revenue fell 4.8% from RM2.5 billion in FY2018 to RM2.4 billion in FY2019. Pos Malaysia recorded a loss before tax and zakat of RM158.4 million in FY2019 compared with a profit before tax and zakat of RM117.3 million in FY2018. The deterioration in performance was mainly due to an impairment in goodwill, a one-off aircraft redelivery expense, and continued losses in the Postal Services segment. This was further worsened by the increased cost due to international mail charges and staff cost. The Courier segment was the biggest contributor (35%) to group revenue, followed by Postal Services (30%), Logistics (13%), Aviation (12%), International (6%) and Other Businesses (4%).

2. The mail business has been on an accelerated decline, largely due to the ongoing substitution from traditional mail to e-mail. Total mail volume fell at an annualised rate of 11% from FY2017 to FY2019, compared to 7% annually from FY2014 to FY2016. This is despite the increasing number of postal addresses, which have increased by 21% since FY2014 to 9.6 million in FY2019.

3. On 12 September 2019, Communications and Multimedia Minister Gobind Singh Deo said the ministry is awaiting a report from Pos Malaysia on a proposed hike in postage tariffs and hopes to get it done by the end of the year. Group CEO Syed Md Najib bin Syed Md Noor noted that the last time domestic postage cost was raised – to the current 60 sen – was about 10 years ago in 2010. Prior to that, the cost of stamps remained at 30 sen from 1992, when the Postal Department was corporatized as Pos Malaysia. The CEO said that although a tariff rebalancing is critical to partially recover operating costs in the mail segment, a transformation plan where cost containment is the top priority has to be put in place to ensure business sustainability. Pos Malaysia aspires to breakeven by 2020 with the tariff rebalancing, achieve margin improvement in 2021, and achieve sustainable growth by 2022.

4. Although disruptive and emerging technologies are causing the decline in mail volume, it provides new business opportunities. The booming e-commerce sector in Malaysia is projected to grow at 15% per annum. Revenue generated by Pos Laju — Pos Malaysia’s courier business unit — rose 6% to RM824 million in FY2019, driven by higher volume of items delivered. The courier business overtook the mail business in terms of revenue two years ago. Parcel delivery volume increased at a comppund annual growth rate (CAGR) of 20.1% from 40 million in FY2014 to 100 million in FY2019. However, the high-growth industry is attracting competition for last-mile delivery, with over 100 courier companies competing for market share.

5. The Integrated Parcel Centres (IPC) in Shah Alam and a newly completed facility in KLIA 2 has increased processing capacity by 77% from 300,000 to 530,000 parcels per day. The management’s future plan is to develop regional IPCs across Malaysia, estimated to increase processing capacity to 1 million parcels per day from 2020 onwards.

6. The Minority Shareholder Watch Group (MSWG) noted that despite an increase in revenue, profit for the Courier segment declined significantly from RM148.2 million to RM23.4 million. The CEO explained that included in the segment is Pos Asia Cargo Express (ACE) as the major transport provider for the courier business, which incurred a one-off cost of RM63 million, comprising a RM44 million aircraft redelivery charge and RM19 million rental of additional aircraft, which affected profit this fiscal year.

7. A shareholder noted that revenue from the International segment fell 8% year-on-year to RM147.2 million of revenue in FY2019 and recorded a loss of RM16.2 million. The chairman explained the loss was mainly due to the impact of regulated pricing coupled with a rise in terminal dues. To overcome this, management is working with regulators to revise the international tariff to allow cost recovery on the terminal dues that Pos Malaysia pays. The primary work of the International business unit consists of cross-border business, in which e-commerce customers deliver their items to various destinations across the globe.

8. In August 2019, Pos Malaysia signed a collaboration agreement with China-based STO Express International Co Ltd to jointly explore cross-border cooperation. Pos Malaysia’s CEO said the tie-up will strengthen Pos Malaysia’s position through the exchange of best practices and technology in establishing an end-to-end logistics platform for small and medium enterprises (SMEs) as well as individual consumers, thus providing a one-stop solution for international courier services. He also said this will help SMEs accelerate the growth of e-commerce in the country and contribute positively to the nation’s gross domestic product.

9. Datuk Yasmin binti Mahmood was appointed as Pos Malaysia’s new independent non-executive chairman effective 1 April 2019. She has served various technology giants previously; she was general manager (GM) of Hewlett Packard Malaysia’s Commercial Channels Organisation, a dual-role of GM and regional corporate director of Dell Malaysia, before moving on to become managing director of Microsoft Malaysia. During the AGM, Yasmin answered shareholders’ questions in a candid manner, and admitted the mistake of the previous management which led to the RM44 million provision for aircraft redelivery expenses.

10. A shareholder was concerned that Pos Malaysia is supposedly controlled by an invisible hand, namely tycoon Syed Mokhtar Albukhary, whose private company Etika Strategi Sdn Bhd owns a 55.9% stake in DRB-Hicom. DRB-Hicom in turn owns a 53.5% stake in Pos Malaysia, according to the companies’ respective 2019 annual reports. Interestingly, Sharifah Sofia binti Syed Mokhtar Syah, the daughter of Syed Mokhtar Albukhary, was appointed to Pos Malaysia’s board on 13 April 2018. She also sits on the board of other listed companies controlled by Syed Mokhtar Albukhary, namely DRB-Hicom, Gas Malaysia, Malakoff, and MMC Corp.

Liked our analysis of this AGM? Click here to view a complete list of AGMs we’ve attended »

Young Jia Yi

Jia Yi has been an investor since the age of 18, following the investing philosophies of Buffett and Munger. He currently works as an industry analyst in an independent investment research firm. He is passionate about understanding how things are interconnected in the world and enjoys reading in his free time.

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