Results

• SWIFT Haulage Berhad (SWIFT) posted revenue of RM165.1m in 2Q23, which was flat at +0.2% qoq but grew 3.1% yoy. The better yoy revenue was mainly contributed by increase in fleet capacity for Land Transportation and higher revenue from warehousing followed by the warehouse expansion in FY22. However, the increase in aforementioned segment was offset by lower container haulage and freight forwarding revenue.

• Earnings dropped. SWIFT’s 2Q23 net earnings dropped 4% qoq and 26.3% yoy to RM9.7m as higher finance cost and depreciation cost in the quarter as a result of aggressive expansion with higher borrowing cost and asset.

• Earnings below expectation. SWIFT’s 2Q23 earnings missed our expectations after 1H23 PATAMI only accounted for 39%/35% of our/consensus full year earnings forecast as the recovery of trade activity is slower than our expectation. However, we expect Swift to deliver higher profit in 2H23 following the gradual ramp up from its expanded warehouse capacity and the additional 4k TEUs capacity in Port Klang.

• Business segments: Land Transportation and Warehousing & Container Depot segments saw a QoQ decrease in profit due to increased depreciation from fleet expansion and warehouse investments, while awaiting business growth. In the Freight Forwarding segment, profits dropped both YoY and QoQ resulted from normalization of freight rates.

• Dividend declared. The board has declared a first interim dividend of RM 0.8 sen/share. Our full year dividend forecast stands at RM 1.8 sen/share resulting in yield of 3.7%.

Comments

• Warehousing as main driver for growth. We are optimistic that the Warehousing segment will become the company’s main growth driver moving forward underpinned by gradual ramp up and expanded warehouse capacity. After the completion of its warehouse expansion in FY23, the Group aims to further increase its warehouse capacity by 30% in FY24 including expanding the Mandin warehouse which is currently running at full utilization and constructing a warehouse in Westport.

• Normalization of freight rates. During the quarter, the performance of Swift has continued to be impacted by the lower margin from Freight forwarding segment (-16.5 ppts qoq and – 9 ppts yoy) attributed to the normalization of freight rates as we expected. As anticipated, freight rates have returned to near pre-pandemic levels, and we anticipate that they will remain relatively stable in the upcoming financial year. To recap, 80% of Swift’s freight forwarding business is contributed by the domestic forwarding.

• Growth at the expense of short-term performance. To reiterate, 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. However, we are optimistic on the Group’s development in the long run due to its growing market share and leading position in the domestic logistic business, which are able to minimize the risk of external headwinds in FY23.  

Earnings Outlook  

• We lower down our net earnings forecast for FY23F to RM 45.9m (from RM51.8m previously) after we reduced our assumption on trips count on land transportation and container haulage segment in line with the slowdown in trade activities. However, we are keeping our FY24F net earnings forecast at RM 57.9m with the positive view of the increasing demand and capacity of warehousing business.  

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 73% upside against the current share price of RM0.49.  

• 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 - 21 Aug 2023