Bursa Malaysia Stock Watch
Freight Management Holdings
kltrader
Publish date: Sun, 30 May 2010, 07:45 PM
kltrader
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STRONG BUY
12-Month Target Price: MYR0.98
? Freight Management Holdings? (FMH) 9MFY10 (Jun) results were within our expectations with net profit of MYR11.8 mln (+23.5% YoY). 3QFY10 (Jun) performance was particularly robust, with revenue up
33.7% YoY to MYR 66.5 mln, and net profit rose 32.4% YoY to MYR3.7 mln.
? Revenue from all key divisions improved, with sea freight in 3QFY10 jumping a hefty 62.0% YoY on the back of a rise in volume ferried (+55.7% YoY). Though gross profit margin for this division declined to
21.5% in 3QFY10 (from 26.3% in 3QFY09) due to an increase in vendor freight rates, the strong rise in freight volumes overcame weaker margins, translating to continued profit growth.
? Similarly, the launch of land freight services between Malaysia and Thailand has also helped FMH overcome the problem of erratic Thai/Malaysia rail services, where delays in transit time and shortage of locomotives often affected timely deliveries.
? Management remains upbeat, targeting double digit pretax growth for FY10, on the back of organic growth, continued productivity improvements and tight cost management. We are projecting a 15.5% pretax growth for FY10. Given its focus on Intra-Asia freight, impact from recent Eurozone weakness will be muted. FMH is also steadily increasing its ASEAN footprint, with five offices in Indonesia and one each in Thailand and Vietnam.
? Our 2010 projection remains unchanged. We maintain our Strong Buy recommendation and 12-month target price of MYR0.98. We value FMH by ascribing a target PER of 7.5x (unchanged) to our projected
FY10 earnings and include a projected net DPS of 3.3 sen. Our target PER is pegged to the valuation of a basket of logistic players.
? In our opinion, FMH?s business model has proven to be quite resilient. Freight rates have stabilized in the medium term, in our opinion, and FMH?s Full Container Load (FCL) business should benefit from the
economic recovery. The asset light business model has provided flexibility and management is continuously seeking suitable JV partners or potential acquisitions to further expand its intra-ASEAN
footprint.
? With its excellent track record and value added services, we believe that FMH will garner market share at the expense of smaller logistic players in the industry. Its balance sheet remains sound, and forward
capex requirements are also minimal
? Risks to our recommendation and target price include (i) a tougher than expected operating environment in the rail freight division, whichwill erode profits; (ii) an unexpected decline in freight rates which will
affect profitability; and (iii) a further unexpected downturn in import and export activities.
Summary: Listed on the Second Board of Bursa Malaysia Securities in Feb. 2005, Freight Management was
transferred to the Main Board in Dec. 2007. It is a logistic player providing sea, rail and air freight services, tug and barge services, as well as warehouse/distribution and custom brokerage services
Major Shareholders:
Chew Chong Keat 28%
Singapore Enterprises Pte Ltd 20%
By Standard & Poor's
Analyst: Kah Ling Chan
12-Month Target Price: MYR0.98
? Freight Management Holdings? (FMH) 9MFY10 (Jun) results were within our expectations with net profit of MYR11.8 mln (+23.5% YoY). 3QFY10 (Jun) performance was particularly robust, with revenue up
33.7% YoY to MYR 66.5 mln, and net profit rose 32.4% YoY to MYR3.7 mln.
? Revenue from all key divisions improved, with sea freight in 3QFY10 jumping a hefty 62.0% YoY on the back of a rise in volume ferried (+55.7% YoY). Though gross profit margin for this division declined to
21.5% in 3QFY10 (from 26.3% in 3QFY09) due to an increase in vendor freight rates, the strong rise in freight volumes overcame weaker margins, translating to continued profit growth.
? Similarly, the launch of land freight services between Malaysia and Thailand has also helped FMH overcome the problem of erratic Thai/Malaysia rail services, where delays in transit time and shortage of locomotives often affected timely deliveries.
? Management remains upbeat, targeting double digit pretax growth for FY10, on the back of organic growth, continued productivity improvements and tight cost management. We are projecting a 15.5% pretax growth for FY10. Given its focus on Intra-Asia freight, impact from recent Eurozone weakness will be muted. FMH is also steadily increasing its ASEAN footprint, with five offices in Indonesia and one each in Thailand and Vietnam.
? Our 2010 projection remains unchanged. We maintain our Strong Buy recommendation and 12-month target price of MYR0.98. We value FMH by ascribing a target PER of 7.5x (unchanged) to our projected
FY10 earnings and include a projected net DPS of 3.3 sen. Our target PER is pegged to the valuation of a basket of logistic players.
? In our opinion, FMH?s business model has proven to be quite resilient. Freight rates have stabilized in the medium term, in our opinion, and FMH?s Full Container Load (FCL) business should benefit from the
economic recovery. The asset light business model has provided flexibility and management is continuously seeking suitable JV partners or potential acquisitions to further expand its intra-ASEAN
footprint.
? With its excellent track record and value added services, we believe that FMH will garner market share at the expense of smaller logistic players in the industry. Its balance sheet remains sound, and forward
capex requirements are also minimal
? Risks to our recommendation and target price include (i) a tougher than expected operating environment in the rail freight division, whichwill erode profits; (ii) an unexpected decline in freight rates which will
affect profitability; and (iii) a further unexpected downturn in import and export activities.
Summary: Listed on the Second Board of Bursa Malaysia Securities in Feb. 2005, Freight Management was
transferred to the Main Board in Dec. 2007. It is a logistic player providing sea, rail and air freight services, tug and barge services, as well as warehouse/distribution and custom brokerage services
Major Shareholders:
Chew Chong Keat 28%
Singapore Enterprises Pte Ltd 20%
By Standard & Poor's
Analyst: Kah Ling Chan
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