Stock Name: FREIGHT
Company Name: FREIGHT MANAGEMENT HLDGS BHD
Research House: OSK

Freight Management Holdings Bhd (Freight)
(July 28, RM1.04)
Maintain buy at RM1.03 with higher target price of RM1.40 (from 95 sen): Freight has drawn strong buying since last week, which has driven its share price up by 27% to RM1.03,'' well above our target price. The daily average volume traded over the past one week was also higher than usual. From our checks, we gather that it's business as usual. As such, we believe that the heavy interest in the stock was possibly spurred by its sound fundamentals and future prospects, as well as attractive valuations.

Taking the cue from NCB's Northport's (buy, target price RM3.72) encouraging 2QCY2010 container throughput volume, which reached a historical high, we see Freight potentially chalking up similarly robust numbers during the quarter, which would translate into higher earnings. This will be positive for Freight's newly set up haulage division, which currently earns a higher than industry average margin.

The management has also indicated that July's handling volume remained encouraging and expects the outlook to remain favourable, although we acknowledge that economic growth in 2HCY2010 will be more subdued as the low base effect wears out.

It has been acknowledged that major liners are currently facing container shortages after the global slump disrupted the production of new containers, which has in turn resulted in higher freight rates. The management indicated that the company has been spared because Freight acts'' only as an intermediary between the liners and importer/exporters. This crisis has instead opened the opportunity for Freight to leverage on the situation by maximising its profit spread on freight shipments.

While the tug and barge division will remain weak over the next few quarters given that the oversupply of barges from the Middle East, we see heightening construction activities in Malaysia come 2011 supporting a recovery in the segment in the form of higher shipments of building materials.

Furthermore, as unveiled in the 10MP, land reclamation for the expansion of Westport requires the shipment of sand, thus potentially benefitting tug and barge operators like FMH. ' OSK Research, July 28


This article appeared in The Edge Financial Daily, July 29, 2010.