Sin-kung Logistics (SINKUNG, 0305) is set to make its debut on Bursa Ace Market today. SINKUNG is an integrated logistics service provider principally involves in the provision of trucking services, focusing on road feeder services between airports. With plans to double its warehouse capacity and expand its commercial fleet by ~22%, we anticipate SINKUNG to achieve core net earnings of RM10.2m and RM12.2m for FY24 and FY25 respectively. BUY with a FV of RM0.15 based on 14.4x over FY25 EPS, representing a 20% premium over its peers’ average of 12x PE due to its more superior margins and market leadership.

On top of the airport-to-airport road feeder services, SINKUNG also provides container haulage services, warehousing and distribution services, and other logistics-related services to its customers. The company currently owns 461 commercial vehicles and 5 warehouses located in Shah Alam, Port Klang, Bukit Mertajam, Butterworth and Bukit Minyak.

SINKUNG’s higher-margin warehousing and distribution services segment contribution to revenue has grown from <7% in FY20 to >15% in FY23 and this is expected to expand even more prominently via the acquisition of Valdor Office and Warehouse in the northern region of Peninsular Malaysia, which will double its warehousing capacity from 190,260 pallets to 382,260 pallets (aimed to commence by 4Q26). We believe the expansion is timely as its Bukit Mertajam warehouse has reached 90% utilization rate while its Butterworth warehouse and Bukit Minyak warehouse may be insufficient to accommodate the expected surge in demand attributed to the booming FDIs in northern Peninsular Malaysia.

In addition to this, SINKUNG also intends to add another 100 commercial vehicles to its current fleet by FY25, which will increase its existing commercial vehicle fleet size by approximately 22%. This will further boost the group’s market share in the niche airport-to- airport road feeder services, which is already similar in size to one of its prominent competitors MasKargo Logistics SB. As a result, we believe SINKUNG will improve its profit margin as it garners economies of scale while correspondingly benefitting from its in- house vehicle maintenance model.

As of 1QFY24, SINKUNG’s balance sheet remains manageable with a net gearing ratio of 0.7x. The group does not have any dividend policy at this juncture.

Source: Rakuten Research - 15 May 2024

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