• Downgrade to HOLD (TP: RM0.58). Swift’s 9MFY23 Core PATAMI of RM22.8mn (exclude RM25.5mn bargain purchase gain through acquisition of 17.5% stake in Global Vision Logistics SB) was below ours and consensus expectations, accounting for only 50% and 53% respectively. The deviation against ours was mainly due to higher-than-expected operation costs. Swift reported a Core PATAMI drop of -70% QoQ in 3QFY23, despite a +1.8% increase in revenue as margin contracted on higher overall operating cost and depreciation. We are cautious about the near-term volume outlook for the Container Haulage and Freight Forwarding segments, but anticipate improved long-term earnings prospects supported by the expansion of Warehouse & Container Depot capacity. Maintain our forecast pending management meeting and unchanged TP of RM0.58 (PER 10x to FY24 EPS of 5.8 sen). Downgrade to HOLD call, on the back of challenging near-term outlook and limited upside as the share price has appreciate by 25% from its lowest in June 2023.

• Key highlights. Swift’s 3QFY23 revenue increased to RM168mn (+1.8% QoQ, 5.5% YoY), driven largely by Land Transportation segment (+0.5% QoQ, +17% YoY) and Warehousing & Container Depot (+6.4% QoQ, +26.1% YoY) from new capacity added, partially offset by Freight Forwarding segment (-6.9% QoQ, -12.9% YoY) likely due to a drop in throughput port volume and normalization of freight rates. However, Core PATAMI dropped by 70% and majority of the business segments registered margin contraction due to higher overall operating expenses, higher depreciation and finance costs.

• Earnings Revision. No changes are made pending the management meeting.

• Outlook. We have turned cautious on Swift’s near-term outlook given the company’s three consecutive quarters of earnings misses. Additionally, prevailing macroeconomic challenges could affect the container haulage and freight forwarding volumes. Although ongoing capacity expansion in the Warehouse & Container Depot segment is expected to enhance Swift's longterm earnings prospects and margins, the near-term uptake rate and economies of scale may be slow.

Source: BIMB Securities Research - 9 Nov 2023