Results

• SWIFT Haulage Berhad (SWIFT) posted revenue of RM165.2m in its 4Q22, which grew 3.7% qoq and 4.9% yoy. The growth in revenue was mainly contributed by its land transportation and warehouse business segment thanks to the expansion of capacity on prime movers and warehouse.

• But PATAMI dropped. SWIFT’s 4Q22 net earnings declined 4% qoq and 16.6% yoy as higher finance cost and depreciation cost recorded in the quarter due to aggressive expansion with higher borrowing cost and asset.

• Earnings below expectation. SWIFT’s 4Q22 earnings are slightly below our expectations despite revenue meeting our forecast but FY22 PATAMI only accounted for 95%/92% of our/consensus full year earnings forecast. The sluggish performance was mainly due to higher depreciation and finance costs.

• Business segments. Container haulage reported RM 67.2m in revenue (-3% qoq and -1% yoy) and RM 5.5m profit (-18% qoq and -36% yoy). Land transportation reported RM 56.6m revenue (+10% qoq and +16% yoy) and RM 3.3m profit (-5% qoq but +87% yoy). Warehousing and container depot reported RM 23.9m revenue (+13% qoq and +10% yoy) and RM 2.5m profit (-1% qoq and -21% yoy). Freight forwarding reported RM 17.5m revenue (+7% qoq but -8% yoy) and RM 9.9m profit (+18% qoq and +31% yoy).
   
• Dividend declared. The Board has declared a Dividend of 1 sen/share for FY22 which takes the full year dividend to 2 sen/share and translating into a payout ratio of 35%.

Comments

• Warehousing as main driver for growth. The warehouse and container depot segment accounted for 11% of FY22 total earnings contribution. We are optimistic that this segment will become the main driver of the Group’s earnings growth moving forward underpinned by gradual production ramp up and expanded warehouse capacity in Seperang Prai, Tebrau and PKFZ. Moving forward, the management is planning to expand its warehouse capacity in FY23 by building a new warehouse in its own landbank in Mak Mandin (150k sqft) and Pulau Indah (250k sqft) and this is estimated to increase capacity by for another 30.7%. The warehousing expansion could provide synergy effect and benefit other segments.

• Firm crude oil price prompted PETRONAS Refinery and 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 on the flip side, the Group benefited from the higher demand in transportation for Petronas Group’s petrochemicals products.

• Normalization of freight rates benefiting the freight forwarding segment with higher volume. Despite international freight rates subsiding from the peak, this has benefitted Swift in the domestic shipping between East and West Malaysia with higher consistent cargo volume.

• Growth at the expense of short-term performance. We do not expect to see significant financial growth in SWIFT in the near term attributed by the Group is still actively expanding in terms of inorganic growth and capacity and this will lead to higher operating and borrowing costs before we see profit contribution. However, we are optimistic on the Group’s development in long run for its growing market share and leading position in domestic logistic business which are able to minimize the risk of external headwinds in FY23.

• Shares Buy Back provides a level of support. The recent share buy-back activities by the management from a range of RM0.47 – RM0.505 has provided a level of support to the company from short-term price fluctuations

Earnings Outlook

• We revise down our PATAMI forecast for FY23F PATAMI forecast to RM53.1m (from RM 58.2m previously) as we increase our depreciation and finance cost estimation. Meantime, we introduce our FY24F earnings forecast at RM 57.9m which +9% yoy.

Valuation/Recommendation

• We maintained our BUY call on SWIFT with a lower target price of RM 0.78 (from RM0.85 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 63% upside against the current share price of RM0.475.

• We favour the stock for its : 1) Attractive risk to reward ratio as the stock is currently trading at undemanding 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 domestic logistic business to minimize the risk or external headwinds.

Source: JF Apex Securities Research - 28 Feb 2023