• Maintain BUY, new MYR0.79 TP (DCF) from MYR0.90, 40% upside and c.6% yield. FY23 (Jun) core earnings of MYR39.9m came within our expectation at 99.8% despite FM Global Logistics seeing a prolonged weakness across all business segments in 4QFY23. While we believe FM will be the key beneficiary once trade activities pick up, we trim our FY24F earnings by 6.7%, as we still expect the freight market to remain challenging in the near term. The group declared a final interim dividend of 2 sen/share, (full year: 4 sen). This report marks the transfer of coverage to Nai Wan Yan.

• Meeting expectations. 4QFY23 revenue came in at MYR197.4m (-2.3% QoQ, -40.9% YoY), dragged by weaker contributions from the international business segment on lower freight rates and slower global economic activities. Core earnings for the quarter of MYR7.1m were down 27.9% QoQ and 43% YoY – the sharper YoY drop was attributable to the high base in 4QFY22 due to pent-up post-lockdown activities and elevated freight rates. Despite challenging freight operations, FY23 core earnings of MYR39.9m (-18.1% YoY) met our estimates. The subdued YoY performance was in line with the weakening demand as global economic activities decelerated.

• Container volumes. While FM’s full-year volume of 123,066 TEUs posted a modest 3% YoY drop, the declining trend was more prevalent in 4QFY23, which saw a 17.6% YoY drop to 27,688 TEUs. This was in tandem with the trade activity slowdowns. Within the full container load or FCL segment, FY23 volumes were relatively resilient, as lower sea freight volumes were cushioned by the growth in land freight volumes (Figure 2).

• Domestic business to bolster a softened international segment. While ocean freight forwarding remains FM’s core business (c.60% contribution to group revenue and GP), we expect the freight market to remain strenuous and continue weighing down on FM’s international business. The group’s domestic business – eg 3PL, warehousing, and support services - should continue to support FM’s earnings, in our view. While July’s trade performance continued to see negative growth (export: -13.1% YoY, import: -15.9% YoY), the World Trade Organisation still holds its FY23F trade volumes growth at 1.7% and expects it to strengthen to 3.2% for 2024. We believe FM, as Malaysia’s freight market leader, will be the key beneficiary once trade activities and the global economy pick up.

• Earnings revision. Although results were in line, we lower our FY24F earnings by 6.7% to account for the softening freight rates. This results in a new DCF-derived TP of MYR0.79 after incorporating a 6% ESG premium (based on FM’s 3.3 score, which is above the country’s 3.0 median). The current valuation is undemanding, as FM trades at 7.7x forward FY24F P/E, well below its historical mean and regional peers. Key risks to our call include slower-than-expected volumes within the sea and air freight divisions, higher-than-expected opex, and a global trade activities slowdown.

Source: RHB Securities Research - 24 Aug 2023