Maintain HOLD; expecting a subdued 3Q23

We maintain our earnings forecasts and MYR0.52 TP for Swift Haulage (Swift), the latter based on FY24E EV/EBITDA of 7.0x, in-line with its peers’ 5Y hist. mean. We anticipate 3Q23 earnings to remain subdued due to a challenging macro environment, affecting Swift’s logistics rates. Additionally, higher operating costs, due to suboptimal operating scale, has persisted amid ongoing ramp-up efforts for new warehouses. HOLD.

Green logistics division launched

Positively, Swift has been proactively embarking on its sustainable journey amid the economic slowdown. This week (on 16 Oct), it launched its green logistics division, reaffirming its commitment to eco-conscious solutions. Additionally, it has handed over Malaysia's first electric prime mover to Unilever (one of its major customers), marking Swift’s first adoption of electric vehicles in its local supply chain. Swift has committed to procure only electric prime movers or trucks from 2030 onwards.

Another warehousing expansion in 3Q23

In 3Q23, Swift signed a MYR4.4b industrial land lease agreement for up to 30 years (with an option to renew) with Terengganu State Economic Development Corporation, as it aims to expand its presence in the East Coast region to better service its key O&G/petrochemical industry clients. We are positive on this move. Nonetheless, this requires additional capex which may further burden its already highly leveraged balance sheet. Returns however, are anticipated to take time to materialise. We have yet to impute this development into our earnings forecasts.

Cautious on execution risks & other challenges

While we acknowledge Swift's commitment to sustainability and expansion, there will be execution risks amid current challenges in the macro front. On the expanded service tax scope to include the logistics sector proposed in Budget 2024 on 13 Oct, Swift is not expected to be impacted, as the service tax will be borne by its customers.

Source: Maybank Research - 23 Oct 2023