SWIFT expects gradual improvement in port throughput volume starting 2HFY24 as port congestion is seen to ease, preluding greater recovery in 2025. Its warehouse and container depot as well as land transportation businesses will be continually driven by strong demand from FMCG customers, which is per expectation. We keep our forecasts, TP of RM0.50 and MARKET PERFORM call.

We came away from SWIFT’s 2QFY24 results briefing yesterday feeling upbeat. The key takeaways are as follows:

1. SWIFT believes the prolonged conflicts in the Middle East will continue to weigh down on the Asia-Europe trade, echoing WPRTS’s guidance for a low single-digit container volume growth rate in FY24 (in line with our container haulage segment growth assumption of 2%). Nevertheless, as port congestion eases, it expects a gradual improvement in port throughput volumes from 2HFY24 vs. its weak performance in the 1HFY24 (gateway port throughput volume fell 4% to 3.5m TEUs). Looking ahead, it is slightly more positive on FY25, guiding for a single-digit container volume growth rate (vs. our container haulage segment growth assumption of 2%).
    
2. Its new warehouse in Westport (260k sq ft) commenced operation on 1 Mar 2024 with 70% of space taken up by Sharp (distributor of white goods), 20% filled by a new FMCG customer in May 2024, and the remainder to be filled with ad-hoc customers. Meanwhile, its Tebrau warehouses (200k sq ft) will onboard a new FMCG customer in September/October 2024, which had been delayed from April 2024 as the customer intends to take a larger space (requiring renovation). This should boost its occupancy rate to 80% (from 15%). It hopes to lease the remaining 20% to Singapore-based businesses as distribution hubs given the warehouse’s proximity to Tuas Second Link. The occupancy rate of its PKFZ warehouse (178k sq ft) rose to 80% (vs. 60%, three months ago). It is in active discussions with potential tenants. In terms of total warehouse space, we maintain our assumption of 1.7m sq ft in FY24F (+30%) and introduce an assumption of 1.9m sq ft (+17%) for FY25F.
    
3. SWIFT will continue to leverage on its new shareholder, Thailand- listed SCGJWD Logistics PCL, to expand its cross-border trucking. Leveraging the latter’s wide logistics network in Thailand, it onboarded one such maiden customer, i.e. Sharp, for its land transportation service in Mar 2024, in addition to warehousing service in Westport. We maintain our volume growth assumption of 5% for both FY24 and FY25 for its land transportation segment.

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), cold chain warehouse in Sabah (from 27k sq ft to 57k sq ft, Westport on-dock depot (5 acres for 4,000 TEUs), Westport warehouse, Pulau Indah, Selangor (260k sq ft; operation started in Mar 2024), and another warehouse in Seberang Perai, Penang (118k sq ft; acquisition completed in Aug 2024), as well as commenced warehouse management and transportation services in Pengerang for Petronas (c.1.17m sq ft). We expect SWIFT to further its expansion in the northern region, i.e. Kedah, due to the recent increase in the FDI there. Its on-going expansion plan includes the biggest green logistics hub in Asia (outside China) under 30%-associate GVL (first phase of 2.8m sq ft by Nov 2025 and 6.0m sq ft when fully completed by 2028) which is on track and expected to contribute to its earnings starting 4QFY25 (1-2 months contribution).

Forecasts. Maintained.

Valuations. We also maintain our TP of RM0.50 based on unchanged FY25F PER of 10x, in line with the average forward PER of the local logistics sector. 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 value-adding integrated offerings resulting in a superior pre-tax profit margin of c.7% 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, we believe the current market valuations have fully reflected its fundamentals. Maintain MARKET PERFORM.

Risks to our call include: (i) sustained high fuel cost, (ii) global recession hurting the demand for transportation service, and (iii) delays in its warehousing expansion plans.

Source: Kenanga Research - 14 Aug 2024