SWIFT now offers green logistics services in areas of international freight, container haulage, inland distribution and warehousing. It hopes to fully recoup additional costs incurred in relation to its green initiatives with the rising utilisation of its fleet and warehouses. We maintain our forecasts, TP of RM0.63 and OUTPERFORM call.

We came away from SWIFT’s 3QFY23 results briefing yesterday feeling reassured of its prospects. The key takeaways are as follows:

1. SWIFT’s newly launched green logistics services have attracted strong interest from certain European customers with strong ESG awareness. Its green logistics services are available in areas of international freight (green freight carbon emission tracking), container haulage (electric prime mover with live carbon emission tracking and monitoring), inland distribution (electric light truck with smart optimisation and digital authorisation), forwarding (custom electronic data interchange portal) and warehousing (certified internationally with electric forklifts and sustainable power source). Thus far, Unilever Malaysia has taken up one of SWIFT’s first two electric prime movers. 

SWIFT hopes to fully recoup additional costs incurred in relation to its green initiatives with the rising utilisation of its fleet and warehouses. As such, SWIFT reiterated its guidance for improved margins ahead, assuming the overall occupancy rate of its warehouses is to exceed 80% by 4QFY23 (vs. 72% currently) and full utilisation of its upgraded fleet by 1QFY24.

2. SWIFT echoed WPRTS’s guidance for a container volume growth range of 5% to 10% 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. As SWIFT depends more on gateway cargoes (compared with transhipment cargoes of WPRTS), it has stronger earnings visibility as Malaysian exporters benefit from a weak MYR. We are keeping volume growth assumptions of 7% annually in FY23 -24F for its container haulage segment.

3. At 72% as mentioned, its warehouse occupancy rate is relatively unchanged from three months ago with its PKFZ warehouse (178k sq ft) being only 30% filled, which should gradually rise to 45% before the year-end with the on-boarding of two new customers. On a more positive note, its Tebrau warehouses (200k sq ft) onboarded a new FMCG customer in Oct 2023, boosting its occupancy rate to 70% (from 60%). It hopes to lease the remaining 30% to Singaporebased businesses as their distribution hubs given the warehouse’s proximity to Tuas Second Link.

Meanwhile, it is in final talks with a distributor of white goods to take up 70% space in its new warehouse in Westport (260k sq ft; completion by 1QCY24).

It guided for an overall warehouse occupancy rate of 80% to 90% in FY24F (vs. our assumption of 84%). In terms of total warehouse space, we maintain our assumptions of 1.4m sq ft in FY23 (+6%) and 1.8m sq ft in FY24 (+29%).

Still in expansion mode. 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), Port Klang Free Zone warehouse (178k sq ft), and cold chain warehouse in Sabah (from 27k sq ft to 57k sq ft, as well as commenced warehouse management and transportation services in Pengerang for Petronas (c.1.17m sq ft).

Its on-going expansion plans include: (i) Westport on-dock depot (5 acres for 4,000 TEUs by year-end), (ii) a warehouse in Mak Mandin, Penang (150k sq ft; completion by 1QCY24), (iii) Westport warehouse, Pulau Indah, Selangor (260k sq ft; completion by 1QCY24), and (iv) the biggest green logistics hub in Asia (outside China) under 42.5%-associate GVL (first phase of 2.8m sq ft by May 2025, 6.0m sq ft when fully completed by 2028).

Forecasts. Maintained

We also maintain our TP of RM0.63 based on an unchanged FY24F PER of 10x, in-line with local logistics sector benchmark. 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 c.10% compared to the industry average of 4%, and (iii) the tremendous growth potential of its warehousing business, riding on the booming domestic e-commerce. Maintain OUTPERFORM.

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 - 10 Nov 2023