1QFY22 Core Net Profit (CNP) of RM14.3m (+34% YoY, +32% QoQ) came in within our/consensus expectation at 25%/24% of full-year estimate. The group will continue to focus on expanding its customer base domestically and regionally with the concurrent expansion of warehouse capacity. Maintain OUTPERFORM with a TP of RM1.01.

1QFY22 within expectations. 1QFY22 Core Net Profit (CNP) of RM14.3m (+34% YoY, +32% QoQ) came in within our/consensus expectation at 25%/24% of full-year estimate. No dividend was declared for the quarter as the group normally announced its dividend once a year in the 4Q.

Results highlights, 1QFY22 CNP soared 34% YoY and 32% QoQ driven by: (i) strong sales (+5% YoY, +2% QoQ) with the easing of Covid-19 restrictions and recovery of business activities, (ii) expanding PBT margin by 1.2ppt YoY and 2.2ppt QoQ to 10.7% from 9.5% in 1QFY21 and 8.5% in 4QFY21 in concurrence with the lower borrowing cost from the full utilisation of IPO proceeds, and (iii) lower effective tax rate at 15.1% (1QFY21: 23.2%, 4QFY21: -8.7%) contributed by the investment tax allowance and reversal of deferred tax liability due to disposal of property (Note that, there was one-off listing expenses and tax provision in 4QFY21). The 1QFY22 revenue is primarily contributed by container haulage of RM71.1m and land transportation of RM52.4m which represents 77.1% of the Group’s revenue.

Sustainable growth model. The Group will continue to focus on expanding its customer base domestically and regionally with the concurrent expansion of warehouse capacity and have completed the warehouse extension of 200,000 sq ft in Tebrau, Johor and 109,000 sq ft extension in Seberang Perai, Penang during 1HFY22, while 178,000 sq ft of new warehouse in Port Klang Free Zone, Selangor is scheduled to be completed in 3QFY22. Overall, warehouse capacity will increase by approximately 46.0% in FY22. Warehouse and container depot expansions and prime mover additions have enabled SWIFT to tap into the post-Covid recovery demand and healthy external trade growth.

Maintain OP with a TP 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 - 23 May 2022