Being one of the leading freight forwarders in ASEAN, Freight Management Holdings Bhd (“FMHB”) is looking to further strengthen its international presence. We see value proposition on FMHB, supported by its dividend yield of 5.8%, one the highest among logistics players in Malaysia. BUY with a target price of RM0.75 based on 11x FY20 PER as per the valuation of its 3-year average.

FMHB offers multimodal freight services, covering sea freight, air freight, land freight, third party logistics, warehousing and distribution as well as logistics supporting services. Founded in 1988, FMHB has expanded its portfolio to 11 operating countries with domestic market being the top contributor, generating more than 70% of revenue. We like FMHB’s strong presence across the ASEAN region, Australia, UAE, USA and South Asia. To date, FMHB operates with more than 1,000 staff strength and handles volume of 121,000 twenty-foot equivalent unit per annum.

Bulk of the revenue (~70%) is derived from sea freight underpinned by FMHB’s expertise on Less than Container Load (“LCL”). Despite higher volume handled in Full Container Load (“FCL”), gross profit margin garners from LCL segment is nearly double (~35% vs 18%) of FCL. Comparing with FCL, LCL business requires the freight forwarder to equip with higher specialised skills and experience to maximise container space utilisation. Being one of the leaders in the niche LCL segment, the diverse range of customers also benefits FMHB within the segment.

Air freight segment continues to register solid growth over the years supported by higher volume and project shipments. The group operates 9 warehouses totalling 1m sq ft floor space. Besides, management is presently looking to exit its lossmaking tug and barge business which has been dragging overall financial performance.

FMHB has a healthy balance sheet with gearing of 0.2x. It has been consistently paying dividend since listing with payout ratio ranging from 30% to 72%. Offering one of the highest dividend yield amongst industry peers and trading lower than industry average PER of ~21x, we deemed FMHB’s valuation as attractive.

Source: Rakuten Research - 18 Nov 2019