THE BUZZ
Pos Malaysia (POSM) entered into a collaboration with Bank Muamalat (BMMB) via the execution of a Shareholders’ Agreement yesterday to participate in a joint venture company (JV Co) to undertake the Islamic pawn broking business (Ar-Rahnu) at POSM’s outlets (POs).
OUR TAKE
What is Pos Ar-Rahnu? Pos Ar-Rahnu’s core business is in the offering and safekeeping of precious items. It also carries out lending activities based on Shariah principles, involving money lending, loan negotiations as well as to draw, accept, endorse and discount bills of exchange, promissory notes or other securities. In short, the JV Co can undertake any pawn broking activity and act as an auctioneer or dealer in gold, silver, precious stones, jewellery, coins and medals as well as commission agent and general merchant.
POSM the major JV Co shareholder. This JV Co has an authorised share capital of RM20m comprising 20m ordinary shares of RM1.00 each. Nonetheless, on the Effective Date (which is yet to be determined), its shareholders shall cause the JV Co to have an issued and paid-up capital of at least RM5m comprising 5m ordinary RM1 shares. Funding for this Ar-Rahnu operation will initially be raised by the JV Co through financing from financial institutions, which may include BMMB, but management has affirmed that this shall be based on the most favorable terms available to the JV Co.
PosNiaga to get a boost. As we highlighted in our 15 June 2012 report, “Delivering Good News”, the group’s PosNiaga business will be POSM’s next focus area. We also note that under POSM’s 5-year strategic plan unveiled on 14 June 2012, its main objective is to become a one-stop solutions provider. Instead of offering only mail delivery services and insurance products at its 700 POs nationwide - which are located not only at various state capitals and major towns but also in small towns and rural areas - POSM is now extending its services by providing more financial products. We believe Pos Ar-Rahnu can be a sizeable business as it will leverage on POSM’s 700 POs. This is based on the success of the existing Ar-Rahnu Pawn Broking Scheme currently provided via Agro Bank and Bank Rakyat, which have a much smaller network of 176 and 136 branches respectively nationwide. We think the Ar-Rahnu business will boost PosNiaga’s earnings since there could be plenty of low-hanging fruits arising from the difficulties faced by small-time entrepreneurs in obtaining financing from banks in rural areas. Nonetheless, we make no changes to our earnings forecast at this juncture, pending further guidance on the product’s take-up rate as well as margins.
Valuations & Recommendation
Maintain BUY. We continue to like the postal group despite the organic decline in mail volume. This is based on: (i) the high possibility that DRB-HICOM will eventually unlock the value of POSM’s 5 land plots as management already has plans for its land plots, especially its sizeable land in Brickfields, (ii) expectations of a bigger contribution from PosLaju to group earnings by leveraging on 1 of the 2 license holders in Malaysia providing ground handling services to foreign airlines, namely DRB’s Kuala Lumpur Airport Service (KLAS), to enhance its already lucrative courier business (contributing 21% of revenue in FY12), and (iii) POSM’s tie-up with Bank Muamalat and Uni-Asia Life Insurance going forward, which will bolster the retail segment via high-margin fees for over-the-counter transactions at its POs, apart from the existing Shared Banking Services provided on behalf of RHB and Maybank. Maintain BUY, with FV of RM4.14, based on SOP valuation.
Source: OSK
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