We initiate coverage on SWIFT Haulage Bhd with an OUTPERFORM rating and TP of RM1.01 based on FY23E PER of 14x. SWIFT is the largest integrated hauliers in Malaysia with market share of 9.6% commanding up to 606k total TEUs, and is striving to expand its warehousing space to strengthen its dominant position. We are positive on SWIFT for its: (i) robust growth potential from its position as the current largest integrated services, and upcoming expansion of warehouse space, (ii) strong pre-tax profit margin of 10% which is higher than that of the industry average of about 4%, and (iii) improving gearing from the expected utilisation of IPO proceeds to repay the borrowings.

A decade of growth. The group started with the acquisition of Yinson Haulage in 2011, which was later renamed SWIFT Haulage Sdn Bhd, followed by a series of acquisitions in the ensuing nine years. Operating as a dominant player in a highly fragmented and competitive sector, SWIFT Haulage’s management has put various growth platforms in place that enabled 2019-2021 EPS CAGR of +12%. Its past business performance reflects superior operating efficiencies and financial metrics relative to peers thanks to sheer size, geographical reach and the integrated nature of its business model.

It is integrated. It has scale. It has reach. These three attributes embody the essence of SWIFT’s business model. Being integrated, SWIFT has presence in the logistic continuum that spans container haulage, land transport, warehousing and freight forwarding. It is the country’s dominant prime mover operator with the prospects of its container haulage business riding on containerized throughput imports and exports driven by Malaysia’s continued strong trade figures (forecasted 5.0-5.5% GDP growth for 2022). Furthermore, its earnings capture steady recurring income from the petrochemical segment in which it has secured a contract in Nov 2018 for a period of 3 years, with an extension option for another 2 years, to manage a third-party warehouse, which provides exponential future business opportunity especially during periods of rising crude oil price. And it has further expanded its portfolio of diversified blue-chip customers that collectively contributed 33% of FY21 revenue.

Sustainable high single-digit earnings margin for FY21-23. Warehouse, container depot expansions and prime mover additions enable SWIFT to tap into the post-Covid recovery demand and healthy external trade growth. FY22 to FY23 will likely see sustainable high single-digit margin (average PATAMI margin of 8.6%) with the expanding warehousing/container depot business and further freight forwarding growth to outpace the rest. And, there will be financial cost savings from the expected utilisation of IPO proceeds to repay borrowings (allocated RM69.7m, or 43.1% of IPO proceeds) and utilisation of investment tax allowances that lowers tax rate in FY21/22 with spill-over into FY23.

Initiate coverage with OUTPERFORM rating with a Target Price of RM1.01 based on FY23E PER of 14x. We are positive on SWIFT for its:(i) robust growth potential, driven by both higher market demand for its container haulage, land transportation and expanding warehouse space, (ii) strong pre-tax profit margin of 10% which is higher than that of the industry average of about 4%, attributed to the group’s integrated offerings with cost and service advantages from in-house supporting services, and (iii) improving gearing from the expected utilisation of IPO proceeds to repay borrowings.

Risks to our call include: (i) lower-than-expected sales and margin, and (ii) delay in its primary warehousing expansion plan.

Source: Kenanga Research - 12 Apr 2022