SWIFT is selling a 12.5% stake in Shah Alam International Logistics Hub (SAILH) for RM44.4m cash to IJM, paring down its interest to 30% from 42.5%. IJM will emerge as a partner in addition to its role as the building contractor. We maintain our forecasts and TP of RM0.63 but downgrade our call to MARKET PERFORM from OUTPERFORM after the recent run-up in its share price.

A smaller slice of e-commerce hub. SWIFT is selling a 12.5% stake in Global Vision Logistics (GVL), the developer of SAILH for RM44.4m cash to IJM (OP; TP: RM2.31), reducing its ownership in a 6m sq ft green logistics hub, currently under construction in Shah Alam, from 42.5% to 30%. Concurrently, IJM is also acquiring another 12.5% in GVL from private company Hartamas Mentari Sdn Bhd, giving it a total 25% ownership in GVL. The proposed disposal is expected to be completed within 1QCY24.

The key rationale is to rope in IJM as a partner, in addition to its role as the building contractor for the project. Having a financially strong partner like IJM is also crucial to funding further expansion of the hub.

GVL is developing 70.9 acres of land in Shah Alam into a 6m sq ft green logistics hub SAILH at a cost of RM1.3b by 2028, to be funded with ASEAN Green Sri Sukuk (nominal value of up to RM1.5b). The first phase of the development entails 2.8m sq ft of warehouse space at RM700m, to be completed by May 2025 with a ready customer, i.e. Watsons which will occupy up to 400k sq ft of space.

Deal valuation. GVL’s key asset is 70.9 acres of land strategically located near Batu Tiga, i-City in Shah Alam and Subang Jaya township. It has a debt of RM200m.

At RM44.4m for a 12.5% stake, the deal values GVL in its entirety at an enterprise value of RM555.2m (having reflected RM200m debt at GVL), translating to RM180 psf for its land. A quick check on online listings shows that asking prices for comparable land surrounding the area range between RM109 psf and RM138 psf. Meanwhile, independent valuer Knight Frank Malaysia Sdn Bhd valued the land in its entirety at RM495m or RM159 psf. We believe SWIFT is parting with the stake at a good price. SWIFT is expected to record a one-off disposal gain of RM11m.

Impact on earnings and gearing. SWIFT guided potential revenue of RM72m/year at 100% utilisation for the first phase while we forecast GVL to report EBIT of RM29m-RM32m. Applying interest cost from the sukuk at RM21m/year and a 24% corporation tax rate, this translates to a net profit of RM6m-RM8m (for the first phase of 2.8m sq ft of warehousing space).

We estimate the disposal could boost our FY25F earnings forecast by 2% as earnings foregone from the 12.5% stake of RM1m, will be more than offset by RM2m net interest savings from the disposal proceeds. The proceeds will also reduce SWIFT’s net gearing slightly from 0.96x to 0.9x.

Forecasts. Maintained, pending the completion of the deal.

Valuation. 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).

Investment case. We like SWIFT for: (i) its leading position in the Malaysia haulage market commanding close to 10% share, (ii) its valueadding 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.

However, the upside to its share price is limited after the recent run-up in its share price. Downgrade to MARKET PERFORM from 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 - 15 Jan 2024