Investment Highlights

• We initiate coverage on Swift Haulage Berhad (SWIFT) with a BUY call and a target price of RM1.18. The stock will go for Main Market listing in Bursa Malaysia on 21 December 2021. SWIFT is an integrated logistics service provider with services comprising container haulage, land transportation, warehousing, container depot and freight forwarding.
• Leader in container haulage service provider. In FY20, SWIFT handled a total of 588,627 20-foot equivalent unit (TEU) for container haulage in Malaysia, achieving market shares of 6.5% and 7.2% of the total TEU in Malaysia and Peninsular Malaysia respectively. The Group’s container haulage business includes the transportation of laden containers to and from seaports to locations in Malaysia. In FY20, the container business accounted for 45.5% of the total revenue of the Group. The container haulage business covered main seaports in Peninsular which accounted for 89.8% of total container throughput in Malaysia in FY2020. The market share of the number of containers provides SWIFT with the platform to sustain and grow its container haulage business.
• Superior profit margin compares to the industry. SWIFT’s gross profit margin of over 30% which is higher than the industry peers, on the average of 18%-20%. The superior profit margin is mainly due to the business model of SWIFT in which the Group owns a large pool of assets to provide full suite of services while maintaining operational efficiency and minimizing the dependency on 3rd party logistic provider. Meanwhile, the Group does operate the business of sales, service and spare parts of Mercedes Benz and Mitsubishi FUSO commercial vehicles, and also a general insurance agent. SWIFT is able to utilize these for its land transport operation and lower down the cost while increasing the profit margin.
• Rising demand of warehouse benefiting SWIFT’s Warehousing and Depot Services. The pandemic has changed the behaviour of the business as many enterprises are looking to keep more inventories on hand due to the supply chain disruptions and uncertainty which had brought up the demand of warehouse space. The peaked utilization rate of SWIFT’s warehouse is driving the Group to expand its capacity from current 7 warehouses with a total of 1mil sf. A new warehouse in Port Klang Free Zone (PKFZ) which is expected to commence operation in 3QFY22 would charge a higher rate of storage per square feet. Furthermore, the Group still owns 3.4mil sf of land bank to be developed in the near future.
• Rapid growth of E-commerce benefiting SWIFT’s business. The rapid adoption of internet and smart device has created the rapid development of e-commerce amid the pandemic. SWIFT is benefitted from the development with its integrated logistics services. The Group has joint venture (JV) with strategic partner to set up a one-stop e-commerce hub, estimated completion by 2024. The land size with 3mil sf is to provide services including warehouses, storage areas, distribution centres, offices, e-commerce services, transportation hub and packaging facilities to cater the future of e-commerce growth. As the only logistic player in the JV, the one-stop hub is expected to contribute positive profit to the bottom line of the Group.
• Robust clientele with strong relationship. With the past 10 years as an established provider of integrated logistics services, SWIFT has served approximately 1809 customers, hence rendering itself a strong reference and solid track record to further grow its business. By direct dealing with customers, the Group is able to fulfil their requirements and build customer loyalty to maintain and grow existing business relationships, as well as to cross-sell other services to customers when opportunities arise. SWIFT has a well-diversified and blue-chip customers, such as Petronas, Tesco, Xinyi Energy, Nestle, Unilever and Samsung, who contributed 29.3% of its FY20 revenue in total.
• Robust financial growths. SWIFT has registered a 2-yr revenue CAGR of 6% from 2018-2020 amid the pandemic. The growth was mainly driven by the successful value creation through various M&A activities over the past few years which had enhanced the client base, services offering and capacity of the Group. Moving forward, we estimate the Group to achieve 6% YoY growth in revenue and 22% YoY growth in net profit for FY21F. Meanwhile, for FY22F, the Group is envisaged to chalk up +16% YoY in revenue and +26% YoY in net profit, underpinned by the recovery of economic activity and supply chain disruption.

Valuation/Recommendation

• We derive a target price of RM1.18 for SWIFT. Our valuation is based on 16.5x of FY22F EPS of 7.2sen, against industry peers which are currently trading at 12-15x 1-yr forward PE. We assign higher PE multiple (10% premium to the higher range of sector PER of 15x) as compared to the industry mainly due to the Group’s superior profit margin and its leading position in the container haulage business. Our fair value of the stock renders 15% upside against the IPO price of RM1.03.

Key Risks

• Increase in diesel price which impacts profit margin.
• Fail to renew or obtain licenses and permits.
• Shortage of drivers.
• Business shutdown due to the fourth wave of the pandemic.
• Competitive industry environment.

Source: JF Apex Securities Research - 20 Dec 2021