Neutral post results briefing

We came away from Swift Haulage’s post-1Q23 results briefing feeling neutral. We maintain our earnings forecasts and MYR0.51 TP on unchanged FY23E EV/EBITDA of 7.0x, in-line with its peers’ 5Y median. Maintain HOLD. Key highlight includes 1Q23 operating performances, warehouse expansion updates and plans, and its recent M&A activities.

1Q23 operating performance

Container haulage volume has increased by 4% YoY, but rates dropped by 7% YoY due to changes in customer mix and shorter trips. Meanwhile, Land transportation trips rose by 16% YoY, aided by the Watt Wah subsidiary. Freight forwarding jobs and rates declined by 6% YoY and 17% respectively. On new warehousing capacity which expanded in FY22, two warehouses (ie. PKFZ warehouse and Tebrau warehouse) were underutilized (30% and 60% respectively) due to transitioning of leased to own warehouse and reduced volume from a key customer.

Warehouse expansion plans

Following its construction completion of 3 warehouses in FY22, Swift aims to further expand its warehouse capacity by converting its existing vacant land. It plans to add 400k sq ft of new capacity (+30%) by FY24. This includes expanding the fully utilized Mak Mandin warehouse in Penang by 150k sq ft and constructing a new 250k sq ft warehouse in Westports, with both targeted for completion in 1H24. Additionally, the group plans to convert a 5-acre land in Westports for on-dock depot operations (handling capacity = 4k TEUs), in response to the increasing demand for container depot services, expecting to commence operations by 2Q23.

Navigating short term challenges

While Swift Haulage has positioned itself for long-term growth, the company faces short-term challenges due to weakened demand and global macroeconomic conditions. The success of its growth drivers and the utilization of new warehouse capacity will depend on market conditions and the company's ability to adapt to changing circumstances.

Source: Maybank Research - 12 May 2023