KEY INVESTMENT HIGHLIGHTS

• 3QFY24 results were below expectations
• Container haulage performance likely impacted by port congestion
• Expect further improvement in warehouse utilisation
• No changes have been made to earnings estimates pending the results briefing today
• Maintain BUY with an unchanged TP of RM0.54* (under review)

Below expectations. Swift Haulage Berhad (Swift) reported a core PATAMI of RM5.5m for 3QFY24, bringing the total for 9MFY24 to RM21.2m. This was below expectations, achieving only 60%/55% of our/consensus full-year forecast as the profit margin was unexpectedly lower.

Quarterly. All segments drove the +8.9%yoy revenue growth in 3QFY24, with double-digit gains in higher-margin warehousing & depot and freight forwarding businesses. The PBT margin drop in the container haulage segment (-1.7ppts) was likely due to lower volumes stemming from port congestion. Core PATAMI more than doubled compared to 3QFY23, driven by an overall +1.7ppts improvement in margin. Sequentially, the +5.9%qoq revenue increase was driven by growth across all segments. Land transportation was the only segment experiencing a drop in PBT margin (-0.5ppts), likely due to lower rates from the absence of festive periods. Core PATAMI declined -34.0%qoq, partly due to a higher effective tax rate in the reporting quarter.

Outlook. The second half of the year is usually stronger for the container haulage business due to the peak season. However, this year's performance was affected by the Red Sea crisis, which contributed to port congestion and disrupted the movement of goods. Meanwhile, an additional +30% more capacity or +387,000 sq ft will be added to Swift's own/lease & operate warehouse portfolio this year. We anticipate further margin improvement as the overall warehouse utilisation rate is expected to increase to 80% this year (FY23: 74%). We see additional potential in the land transportation segment as warehouse utilisation rates improve, which could drive further growth through cross-selling opportunities.

Maintain BUY for now. Earnings estimates are maintained for now, though there is a possibility of a downgrade as we await the 9MFY24 operating statistics to be shared during the results briefing later today. The stock is trading at -0.5 SD below the sector's 5-year historical mean. A key downside risk is further pressure on profit margins from diseconomies of scale.

Source: MIDF Research - 14 Nov 2024