SWIFT’s 1HFY22 results met expectations. It chalked up a stronger YoY performance driven largely by recovery in business activities on the easing of Covid-19 restrictions, while the transportation of petrochemical products, particularly for Petronas group of companies, was brisk on the back of strong crude oil prices. Also helping was the easing of the congestion at the ports. Maintain OP with a TP of RM1.01.

Within expectations. 1HFY22 CNP of RM27.5m (+19%) came in within expectations at 48%/49% of our full-year forecast / full-year consensus estimates.

Results’ highlight, YoY, 1HFY22 CNP soared 19% driven by: (i) recovery in business activities on the easing of Covid-19 restrictions, while the transportation of petrochemical products, particularly for Petronas group of companies (close to 20% of revenue), was brisk on the back of strong crude oil prices; (ii) improved volumes as the congestion at the ports started to ease in 2QCY22 (manifested in a 9% QoQ growth in Westports’ transhipment volume during the same period); and (iii) a lower effective tax rate at 18.3% (1HFY21: 23.8%) arising from investment tax allowance and reversal of deferred tax liability due to the disposal of a non-core asset.

Expansion plan on track. SWIFT has already completed Tebrau Warehouse expansion (200k sq ft) and Seberang Prai warehouse expansion (109k sq ft). Currently, in progress are the addition of 30 new prime movers (current 1,516 units) which was delayed due to inventory shortages faced by truck makers, Sabah Cold Chain warehouse expansion (current addition completed in June 2021 - by 4QCY22 adding another 30k sq ft), new PKFZ warehouse (3QCY22 - 178k sq ft), and Pengerang warehouse and transportation management (c.1.17m sq ft)

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 of which it is 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 - 18 Aug 2022