Freight  Management  Holdings  (FMH)'s  1HFY13  net  profit  of  RM9.8m  (+5.3%  y-o-y) was an encouraging improvement from its sluggish 1QFY13. The growth was mainly led by Land Freight, 3PL & Warehousing, and Tug & Barge divisions. The operating environment  remained  challenging  for  Sea  Freight  as  its  volume  and  profit continued to decline. Hence, we are trimming our earnings forecasts for FY13/FY14 by 13.8%/1.0%, with a new RM1.13 FV based on an 8x FY14f PER, as we roll over our valuation. Maintain BUY.  

Healthy  results.  FMH's 1HFY13 net profit of RM9.8m was largely in line with consensus estimates  and  our  full-year  FY13  forecasts  of  RM23.2m.  The  overall  growth  was  led  by strong  performance  at  the  3rd Party  Logistics  (3PL)  & Warehousing  division,  coupled  with notable  improvement  in  the  Tug  &  Barge  as  well  as  Land  Freight  operations.  However, these  positives  were  offset  by  slower  growth  in  the  Sea  and  Air  Freight  and  weaker Haulage  and  Customs  Brokerage  segments.  We  also  note that FMH's  1HFY13  PBT growth was softer y-o-y, mainly due to higher depreciation and other costs arising from its new  recent  investments.  That  said,  the  company's 2QFY13  bottom-line  benefited  from  a lower  tax  rate,  helped  by  favourable  effects  of  the  reorganisation  of  its  Malaysian operations, as well as tax-free profits at its Singapore-based Tug & Barge subsidiary.

Contract  logistics  boost  earnings.  FMH's Land Freight segment  recorded  a  robust recovery  in  2QFY13  earnings  (GP  +169.3%  y-o-y),  mainly  boosted  by  its  new  Toshiba contract,  which  commenced  in  November  2012.  Its  3PL  &  Warehousing  segment  also chalked  up  commendable  earnings  growth  in  2QFY13  (GP +70.7%  y-o-y),  thanks  to new customers  coming  on  board,  a  better  service  mix,  as  well  as  improved  efficiency  and utilisation.  Similarly,  the  improvement  in  the  Tug  &  Barge  division  during  the  quarter  was boosted by rising demand, a better customer mix and improved efficiency.

Sea  Freight  continues  to  be  impacted. Earnings growth at its core Sea Freight division slowed (GP +8.4% y-o-y) during the quarter under review, weighed down by lower volume and  softer  margins,  although  Less  Than  A  Container  Load  (LCL)  recovered  in  2QFY13, although  this  was  offset  by  relatively  softer  Full  Container  Load.  LCL  registered  volume growth  of  1.3%  y-o-y  in  2QFY13,  compared  to  a  y-o-y  21.7%  decline  in  1QFY13. Management guided that the favourable service mix and higher average load factor  were the  main  drivers  of  the  better  2QFY13  performance.  Meanwhile,  FCL  generated  higher revenue, thanks to the increase in freight rates but continued to see a dip in profit (-11.0% y-o-y) and volume (-5.0% y-o-y) during the quarter.

Maintain BUY but FV revised  lower. We are still positive on the outlook of the company but we prefer to be more prudent and remain cautious due to the gloomy global economic environment  and  local  political  uncertainty.  We  are  revising  down  our  earnings  forecasts for FY13f/FY14f by 13.8% and 1.0% to RM20.0m and RM23.0m respectively even as we roll  over  our  valuation  and  derive  a  new  FV  of  RM1.13  based  8x  FY14f  PE  (adjusted  for bonus issue), the stock still offers investors a decent capital gain of 12% based on its last closing price.

Source: OSK