SWIFT has proposed to dispose off an industrial land parcel measuring 11.9 acres in Bandar Sultan Sulaiman, Klang, Selangor, for RM38.4m cash. SWIFT will book in a one-off gain of RM14.0m. The exercise is earnings accretive - interest savings from the proceeds will boost its FY23F earnings by 3%. The proceeds will also reduce SWIFT’s net gearing from 0.83x to 0.78x. We maintain our forecasts pending the completion of the deal. Maintain OP with a TP of RM1.01.

Disposing off industrial land for RM38.4m cash. SWIFT is selling an industrial land parcel measuring 11.9 acres in Bandar Sultan Sulaiman, Klang, Selangor, to private company TPC Land SB for RM38.4m cash.

Fair price. The transaction values the land at about RM74 psf. In comparison, industrial land parcels in proximity are listed ranging from RM65 psf to RM88 psf. The land is currently used as a container depot yard which SWIFT deems a non-core asset. We understand that the land is not a prime location for warehousing and SWIFT will integrate its Port Klang operation to its bigger warehouse at Port Klang Free Trade Zone (PKFZ) which is slated to be in operation soon.

Impact on earnings and gearing. SWIFT will book in a oneoff gain of RM14m. The exercise is earnings accretive - interest savings from the proceeds will boost its FY23F earnings by 3%. The proceeds will also reduce SWIFT’s net gearing from 0.83x to 0.78x. We maintain our forecasts pending the completion of the deal.

Maintain OUTPERFORM with a TP of RM1.01 based on FY23F PER of 14x which is in-line with the average forward PER of local logistics companies (i.e. Tasco Bhd, and Tiong Nam Logistics Holdings Bhd). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4). We like the stock for its: (i) position as the leader in haulage business commanding close to 10% of Malaysian market share, and (ii) above peers’ pre-tax profit margin of 10% compared to industry average at 4% with its integrated offerings and cost-service advantage.

Risks to our call include: (i) sustained high fuel cost, (ii) global recession hurting the demand for transportation service; and (iii) delays in its primary warehousing expansion plan.

Source: Kenanga Research - 17 Aug 2022