Freight  Management’s  1HFY14  results  were  largely  in  line  with  our expectations. Most of its  divisions reported healthy   numbers except  for tugs  and  barges,  which  underperformed  during  the  quarter  under review.  All  expansion  plans  are  right  on  track  with  more  income streams expected  to come online within the next few quarters. Maintain BUY, with its MYR2.00 FV pegged to 13.2x FY14F P/E.

• Results in line. Freight Management reported a net profit of MYR10.8m (+10.2% y-o-y) for 1HFY14,  largely  in line with our expectations. Its six month results were mainly  boosted by strong  performances from  its  sea freight,  land  freight,  haulage  and  third-party  logistics  (3PL)  & warehousing divisions. However, the  overall performance was dragged down  by  poorer  tug  &  barge results  –  mainly  due  to  vessel  downtime. This  has  reduced  the  number  of  trips  during  the  period  and  incurred additional  costs  arising  from  unforeseen  repairs.  On  the  bright  side, management guided that this division is expected to improve in 2HFY14 following the repairs to its tugs and barges fleet, the completion of a new set of tugs and barges, and an anticipated pick-up in the number of trips.
• Expansion plans on track.  Freight Management’s  expansion plans are on  track,  notably  its  oil  &  gas  tugs  and  barges  joint  venture  (JV)  with Scomi Energy Services (SES MK, NR)  that  is  nearing  completion.  This JV may even start contributing to its performance in 4QFY14 if the timing is  correct.  Its  new  warehouse  adjacent  to  its  plant  in  Klang  is  under construction and we expect completion by end-2014. Meanwhile, Freight Management’s  venture  in  the  Philippines  is  progressing  well  with  a management team  already  in place. It is now  awaiting  the  licenses  that will allow it to undertake logistics-related businesses.  As the company’s venture  in  India  is  new,  it  is  reporting  losses.  Management,  though,  is confident that this will breakeven in the near term.
• Maintain  BUY,  FV  of  MYR2.00.  We  continue  to  like  Freight Management  for  its  prudent  management,  solid  business  model  and good  earnings  track  record  coupled  with  the  positive  outlook  for  the businesses it operates. Thus, we reiterate our BUY recommendation and maintain our MYR2.00  FV, which pegged to  a 13.2x FY14F P/E. This is also the average of its peers. 

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Freight Management is an integrated logistics provider

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Source: RHB