Neutral from post-results briefing

We came away from Swift Haulage’s post-9M22 results briefing feeling neutral. We maintain our earnings forecasts and MYR0.64 TP on unchanged FY23E EV/EBITDA of 7.0x, in-line with its peers’ 5Y median. Valuation remains undemanding; maintain BUY.

Costs passing through by stages

The group is still in the midst of passing on the inflationary costs to its customers (particularly higher staff costs due to min. wage increment), which has largely affected its 3Q22’s operational performance (as reflected in its EBIT margin pressure). Full costs pass through should be completed by end of this year/early next year.

Warehouse expansion updates

Swift’s warehouse capacity has risen by c.46% following the completion of its recent expansions. 1) Utilisation at Tebrau warehouse has improved to c.70% (from c.50% in 2Q22, affected by labour shortages). It targets to achieve full utilisation by 1Q23. 2) Likewise, Seberang Perai warehouse has achieved 100% utilisation rate (it commenced operation in 2Q22). 3) Construction of PKFZ warehouse is still ongoing - contribution is expected to start from 4Q22. An existing customer has taken up one-third of the warehouse space, while the remaining would be allocated to another customer (aims to conclude by end-FY22). 4) The Pengerang contract logistics (particularly the 3rd party warehouse management) is expected to be delayed by another 1-3 months following a recent explosion at PIC. To recap, the project logistics only started in July after 7 months of delays, and is able to contribute up to c.MYR1m revenue p.m. (GP margin: c.30%).

Cautiously optimistic on future outlook

Despite an increasingly challenging operating outlook, Swift maintains its guidance of double-digit earnings growth in FY23E (vs. our conservative +8% YoY), underpinned by full year contribution from its recent capacity expansion. It is expecting the inevitable China reopening to also contribute positively to the container throughput volume in this region, further supporting the demand for container handling logistics.

Source: Maybank Research - 16 Nov 2022