SWIFT plans to expand its warehouse space further to 1.8m sq ft (+29%) in FY24 as most of its current capacity has been taken up. Its land transportation segment will be buoyed by stable activities at Pengerang as well as Port Klang with key client WPRTS (MP; TP: RM3.65) guiding for sustained container volume growth. We maintain our forecasts, TP of RM1.00 and OUTPERFORM call.

The key takeaways from SWIFT’s 4QFY22 results briefing yesterday are as follows:

1. SWIFT shared that the higher interest expenses incurred in 4QFY22 was from higher borrowings at elevated interest rate. The higher borrowings came from the drawdown of sukuk of RM90m, with RM30m immediately used for capex while the remaining RM60m will be utilise for land acquisition and warehouse expansion. We have sufficiently factored the higher borrowings and interest expenses in our FY23/FY24 assumptions.

2. SWIFT echoed, once again, WPRTS’s guidance for an overall container volume growth of 0% to +5% for FY23, and single-digit growth for FY24. In the event of a global recession, it holds the view that it will be brief and shallow, with a recovery expected in 2H 2023. As SWIFT depends more on gateway cargoes (compared with transhipment cargoes of WPRTS), it has stronger earnings visibility. We are keeping our volume growth assumptions of 7% for both FY23 and FY24, respectively, for its container haulage segment.

3. At present, the overall occupancy rate at its warehouses is at a comfortable level of 90%, driven by robust demand from its major customers especially those in e-commerce, paper milling, commodities trading and petrochemical-based industries. It is looking to build a container depot for Westports by 2QCY23 and further expansion at its warehousing segment in 2024 (refer below) to ride on the recovery in the global economy. We are keeping our assumption of warehousing space of 1.3m sq ft in FY23 (+0%) and 1.8m sq ft in FY24 (+29%).

4. SWIFT shared that its land transportation business will continue to be driven by the increase in transportation services at Pengerang for Petronas with stable production level expected for 2023/2024. In addition, there is rising demand from key customers (i.e. IKEA and Lotus) on the recovery in the local retail sector. We are keeping our growth assumptions of 4% for both FY23 and FY24, respectively, for its land transportation segment.

Relentless expansion. SWIFT has completed the expansion of its warehouses in Tebrau (from 108k sq ft to 308k sq ft), Seberang Prai (from 113k sq ft to 222k sq ft), and building a warehouse in Port Klang Free Zone (178k 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 2QCY23), Westports on dock depot (5 acres for 4,000 TEUs, completion by 2QCY23), warehouse in Mak Mandin, Penang (150k sq ft, completion by 1QCY24), and Pulau Indah, Selangor (250k sq ft, completion by 1QCY24).

We maintain our forecasts and OUTPERFORM call with a TP of RM1.00 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 Malaysia haulage market commanding close to 10% share, (ii) its value-adding integrated offerings resulting in a superior 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.

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 - 1 Mar 2023