SWIFT’s 9MFY22 results met expectations. It chalked up a stronger performance driven largely by recovery in business activities on easing Covid-19 restrictions, while the transportation of petrochemical products, particularly for the Petronas group of companies, was brisk on the back of strong crude oil prices. Also helping was the strong local gateway volume riding on robust exports volume. We maintain our forecasts, TP of RM1.01 and OUTPERFPORM call.

9MFY22 core net profit came in within expectations at 70% and 72% of our full-year forecast and the consensus full-year estimates, respectively. No interim dividend was declared as usual.

YoY, 9MFY22 revenue grew strong (+11%) driven by: (i) recovery in business activities on the easing of Covid-19 restrictions, while the transportation of petrochemical products, particularly for the Petronas group of companies (close to 20% of revenue), was brisk on the back of strong crude oil prices, and (ii) strong gateway volume on the back of robust exports by local manufacturers spurred by the ringgit’s weakness (also manifested in a 7% YoY growth in WPRTS’s gateway volume during the same period)

Core net profit rose by a larger 14% on a lower effective tax rate of 19.3% (9MFY21: 22.2%) arising from investment tax allowance and reversal of deferred tax liability due to the disposal of a non-core asset.

QoQ, 3QFY22 revenue was slightly weaker (-1%) in the absence of festivities resulting in a temporary slowdown in both land transportation (-4%) and freight forwarding (-5%) activities. This was mitigated by sustained demand from warehouse and container depot (+7%) and container haulage (+1%) segments. 3QFY22 core net profit fell by a larger 11% due to poor cost absorption on reduced volumes.

Continue to expand. SWIFT has completed expansion of its warehouses in Tebrau (from 108k sq ft to 308k sq ft), and Seberang Prai (from 113k sq ft to 222k sq ft), as well as commenced providing warehouse management and transportation services in Pengerang for Petronas (c.1.17m sq ft). It is in the midst of expanding its cold chain warehouse in Sabah (from 27k sq ft to 57k sq ft, completion by 1QCY23) and building a warehouse in Port Klang Free Zone (178k sq ft, completion by 4QCY22).

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, and TNLOGIS). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like SWIFT for: (i) its leading position in the Malaysian haulage business commanding close to 10% market share, (ii) its value-adding integrated offerings resulting in a superb pre-tax profit margin of 10% compared to industry average of 4%, and (iii) the tremendous growth potential of its warehousing business, riding on the booming domestic e-commerce market.

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 - 15 Nov 2022