PETALING JAYA: It is going to remain challenging for Pos Malaysia Bhd for some time as the Covid-19 pandemic continues to unfold.

       Hong Leong Investment Bank (HLIB) in a report yesterday said the postal firm’s operating environment continued to be challenging as it is hampered by fast-shrinking snail mail volumes and the weak aviation segment during the pandemic.

       “Pos Malaysia reported a second quarter (Q2) core net loss of RM65.3mil, bringing its first-half (H1) core net loss to RM107.1mil, which was below expectations,” it told clients.

       The deviation was mainly due to a worse-than-expected showing from the postal segment following a decrease in mail and parcel volumes, especially from contract customers, it noted.

       It also said operating cash flow had deteriorated to a deficit of RM36.8mil in H1 of financial year 2021 (FY21) from RM141mil in H1 of FY20, which had caused them to draw down RM125mil in borrowings to maintain liquidity.

       Pos Malaysia van

       “In turn, its net gearing has increased to 0.42 times as at end-H1 of FY21 from 0.31 times as at end-FY20,” the research house said.

       Controlled by DRB-Hicom Bhd, Pos Malaysia sank deeper into the red in Q2 of FY21 due to impairment of property, plant and equipment at its postal division, as well as higher transportation and delivery costs incurred.

       The company made a RM121.8mil loss in the three-month ended June 30 period compared with a RM19mil loss registered in the same quarter last year.

       Revenue decreased to RM534mil from RM606mil a year ago.

       The company said on Monday that nationwide movement restrictions continued to pressure its postal segment with a 20% decline in its mail business as a result of multiple operational limitations arising from stricter standard operating procedures for bulk mailers and financial institutions.

       “We foresee that the migration to digital alternatives and continuation of movement restrictions will continue to depress mail volumes further,” it said.

       As part of its on-going mail rationalisation initiative, four more mail processing centres are expected to be rationalised this year.

       The group is also “revisiting its outsourcing models for Pos Rider and land transportation in order to manage costs better.”

       It recently named Charles Brewer, the former boss at DHL eCommerce in Singapore as its new group chief executive officer.

       Prior to the DHL appointment, Brewer, 56, was the chief operating officer of Canada Post, based in Ottawa.

       In its note, HLIB said Brewer “offers some transformation hope for Pos Malaysia.”

       The research house is maintaining its “hold” rating on the company for now, with a lower target price of 76 sen from an earlier 86 sen.