SWIFT Haulage Berhad (SWIFT) posted a flat revenue of RM159.3m, which dropped 0.5% qoq, and a lower PATAMI of RM 11.7m (-11.2% qoq) mainly due to lesser contribution from its high margin business segment of freight forwarding in 2Q22.
Better YoY performance as a sign of economic recovery. SWIFT’s 9M22 revenue grew 9.9% yoy and PATAMI rose 10.3% yoy as the company benefitted from the easing of containment measures and recovery in business and economic activities, which translated to higher business volume in the current FY.
Earnings below expectation. SWIFT’s 9M22 earnings missed expectations as the 9M PATAMI only accounted for 66%/69% of our/consensus full year earnings forecast. The sluggish performance was mainly due to lower business volume from land transportation and freight forwarding. However, we are expecting 4Q22 to have a better performance due to seasonal effect of the peak festive season.
Container Haulage was main contributor for total revenue while Freight Forwarding business was largest contributor to bottom line. Container Haulage accounted 44% of total revenue while the Freight Forwarding business contributed larger portion to total profit (40%).
QoQ earnings dropped in Land Trasportation and Freight Forwarding but was partially offset by higher earnings from Container Haulage and Warehousing & Container Depot. Land Transportation’s PBT dropped 13% qoq and Freight Forwarding’s PBT declined 10% qoq. Nonetheless, Container haulage segment PBT grew 3% qoq while Warehousing’s PBT added 14% qoq.
Margin of Freight Forwarding started to drop. In 3Q22, Freight Forwarding registered a PBT margin of 52%, which dropped 3.0ppts qoq while revenue from the segment has also declined qoq. We opine that this is a sign of reducing global freight rates and we believe the margin of Freight forwarding will gradually normalize moving forward in FY23 on the back of increased supply of global fleet size and easing of supply disruption which affected international freight rates.
Warehousing business started contributing to topline after its completed expansion, but utilization was still low. The expanded warehouse has started to contribute to the topline of the Group as the Tebrau and Seberang Prai extended warehouse has commenced its operation last quarter and has increased space by 309k sq ft in total. The PKFZ integrated warehouse has started commencing operation in 3Q22. However, the management has briefed us that the Tebrau warehouse are in low utilization rate of about 60% as it was affected by labour shortage. 3Q22’s warehousing and container depot revenue has increased 5% qoq and 24% yoy. We expect more earnings contribution in 4Q22 moving forward, driven by completion of the new PKFZ integrated warehouse coupled with rising e-commerce.
Comments
Warehousing as main driver for growth. The warehouse and container depot segment accounted for 11% of 9M22 total earnings contribution. We are optimistic that the segment will become the main driver of the Group’s earnings growth moving forward underpinned by gradual ramp up and expanded warehouse capacity in Seperang Prai, Tebrau and PKFZ. Moving forward, the management is planning to expand its capacity by another 50% in FY23-FY24 in Sabah (Cold chain), Penang and Shah Alam. The warehousing expansion could provide synergy effect and benefit other segments.
Elevated crude oil price prompted PETRONAS Refinery & Petrochemical Corporation Sdn Bhd (PRPC) to ramp up production and benefitting Swift. Although higher crude oil price has dented Swift’s margin of operation, but in the flip side, the Group benefited from the higher demand of transportation for Petronas Group in petrochemicals products.
Shares Buy Back provides a level of support. The recent share buy-back activities by the management from a range of RM0.480 – RM0.505 has provided a level of support to the company from short-term price fluctuations
Downside risks persists. The global supply chain disruption was deteriorating with external headwinds such as geo-political conflict and global economy slowdown as a result of tightening monetary policy to tame the inflationary pressure. Other downside risks including shortage of drivers and global freight rate dropping deeper than expected.
Earnings Outlook
We revise down our PATAMI forecast for FY22F to RM53.2m (from RM59.5m previously) and FY23F PATAMI forecast to RM58.2m (from RM 62m previously) as global freight forwarding rate started to weaken and the expected economic slowdown in 2023.
Valuation/Recommendation
We maintained our BUY call on SWIFT with a lower target price of RM 0.85 (from RM0.87 previously) due to earnings forecast downgrade. The target price is pegged at a PER of 13x as industry peers are currently trading at 12-15x 1-yr forward PER. Our target price renders 67% upside against the current share price of RM0.510.
We favour the stock for its : 1) Attractive risk to reward ratio as the stock is currently trading at undemanding 7.8x 1- yr forward PER which below the industry PER which trading at average 11x-13x 1yr- forward PER. 2) Warehouse expansion as growth catalyst. 3) Market leader in container haulage with superior profit margin than the industry peers.
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