Swift Haulage Berhad (Swift) 1Q23’s PATAMI of RM10.2mn (QoQ: +9.2%, YoY: -29.5%) was below our and consensus estimates accounting for only 16% and 18% of full year forecast respectively. The deviation against our projection was mainly due to higher-than-expected depreciation, finance and operation costs, hence our new assumption and earnings cut by 18- 15% for FY23-24F. Swift’s FY23 earnings outlook is expected to be lifted by recovery in domestic economic activity supported by its warehouse expansion plan. Maintain a BUY call on Swift, with lower TP of RM0.60.

• Below expectations. Swift’s 1Q23 PATAMI of RM10.2mn (QoQ: +9.2%, YoY: -29.5%) trailed our and consensus’ expectations, accounting for only 16% and 18% of full year forecast. The deviation against ours was mainly due to higher-than-expected depreciation, finance and operation costs.

• Dividend. No dividend was declared during the quarter under review.

• QoQ. Swift’s 1QFY3 revenue and PATAMI increased by 3.2% and 9.2% QoQ respectively. This was largely supported by fleet expansion for Land Transportation segment (revenue: +11%, PBT: +51.5%) and lower effective tax rate of 20% (-7.1 ppts QoQ).

• YoY/YTD. Revenue increased by +5.7% YoY mainly due to strong performances in land transportation segment (+19.8% YoY) from fleet expansion and higher warehousing & container depot segment (13.9% YoY) thanks to higher warehouse capacity. Contributions here, more than offset the slowdown in container haulage and freight forwarding segments. Nevertheless, PATAMI dropped by 29.5%, mainly due to higher finance cost and overhead expenses, pressurizing margin which fell by 2.9 ppts YoY.

• Outlook. Swift’s FY23 earnings outlook is expected to be lifted by recovery in domestic economic activity supported by its expansion plan i.e., additional prime movers and ongoing warehouse expansion. We anticipate lacklustre container haulage operations in the short term, but it will be offset by an expected improvements in warehousing segment as utilisation for new warehouse picks up. On capacity expansion, Swift continued to expand its Sabah cold chain warehouse (+29,665 sq ft), which is expected to commence in 2Q23. Additionally, Swift plans to tap into its unutilised land bank to expand its Penang Mak Mandin Warehouse (+150k sq ft) and build a new Westport Warehouse in Klang (+250k sq ft), targeted to commence in 1Q24.

• Forecast. We cut our FY23-24F earnings forecast by 18-15% following our new assumption on depreciation, finance and operation costs.

• Our call. Following earnings revision, our TP is lowered to RM0.60 (from RM0.71) pegged at unchanged 10x PER to FY23 EPS of 6 sen. We maintain our BUY call and continue to like Swift due to it is a dominant player in the haulage business (10% of Malaysia market share), above peers and industry average profit margins as well as its strong drive to implement ESG initiatives.

Source: BIMB Securities Research - 11 May 2023