Results

• SWIFT Haulage Berhad (SWIFT) posted revenue of  RM169.4m in its 1Q23, which grew 2.5% qoq and  5.7% yoy. The growth of revenue was mainly contributed by  the land transportation segment from fleet expansion and  warehouse business segment from increase in warehouse  capacity. However, the increase in aforementioned segment  was offset by lower container haulage and freight forwarding  revenue.

• But PATAMI dropped. SWIFT’s 1Q23 net earnings of  RM10.1m dropped 9.9% qoq and 29.2% yoy after as higher  finance cost and depreciation cost recorded in the quarter  resulted from aggressive expansion with higher borrowing cost  and asset.

• Earnings in line with expectation. SWIFT’s 1Q23 earnings  meet our expectations despite 1Q23 PATAMI only accounted  for 20%/18% of our/consensus full year earnings forecast.  However, we expect Swift to deliver higher profit in the  remaining quarters following gradual ramp up from expanded  warehouse capacity and the additional 4k TEUs capacity in  Port Klang.

• Business segments: Container haulage reported RM  69.7m in revenue (+4% qoq and -2% yoy) and RM 4.9m PBT (-11% qoq and -28% yoy). Land transportation reported  RM62.9m revenue (+11% qoq and +20% yoy) and RM5m PBT  (+52% qoq and +3% yoy). Warehousing and container  depot reported RM22.3m revenue (-6% qoq but +17% yoy)  and RM3.1m PBT (+23% qoq and +41% yoy). Freight  forwarding reported RM14.4m revenue (-18% qoq and -15%  yoy) and RM6.7m PBT (-33% qoq and -20% yoy).

Comments

• PETRONAS Refinery in Pegerang production resumption benefitting Swift. We have been guided that  Petronas will resume their operation of Oil Refinery in  Pengerang in FY23 which will benefit the Group’s Management  of Warehouse and Transportation business.

• Warehousing as main driver for growth. 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. To recall,  the management is planning to expand its warehouse capacity  in FY23 by building new warehouse in their own landbank in Mak Mandin (150k sqft) and Pulau Indah (250k sqft) and this  is estimated to increase 30.7% of total warehouse capacity.  The warehousing expansion could provide synergy effect and  benefit other segments.

• Normalization of freight rates. During the quarter, the  performance of Swift was impacted by the lower margin from  freight forwarding segment attributed to the normalization of freight rates as what we expected. As anticipated, the rates  have returned to near pre-pandemic levels, and we anticipate  that they will remain relatively stable in the upcoming financial  year. About 80% of Swift’s freight forwarding business is  contributed by the domestic forwarding and foreign forwarding  make up the remaining 20%.

• Growth at the expense of short-term performance. We  do not expect to see significant financial growth in SWIFT in  the near term as 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.

Earnings Outlook

• We maintain our PATAMI forecast for FY23F at  RM51.8m and FY24F at RM 57.9m despite 1Q23 PATAMI  only accounted for 20% of our FY23 full year earnings forecast as we expecting Swift will delivering higher profit in the  remaining quarter following by the gradual ramp up from expanded warehouse capacity and the additional 4k TEUs  capacity in Port Klang.

Valuation/Recommendation

• We maintain our BUY call on SWIFT with an unchanged target price of RM 0.85. The target price is pegged with PER of 13x on FY24F EPS of 6.5sen as industry peers are  currently trading at 12-15x 1-yr forward PER. Our target price  renders 80% upside against the current share price of  RM0.470.

• 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 - 11 May 2023