• Maintain BUY and MYR1.01 TP, 75% upside. 1QFY23 (Jun) results met expectations, with FM Global Logistics’ positive YoY performance underpinned by its robust freight forwarding segment that demonstrated steady volume growth. We expect the continued global trade flows recovery to continue supporting FM’s volume throughput moving forward, mitigating the impact of normalising freight rates. This is further complemented by its ongoing customer-acquisition efforts within both the freight forwarding and 3PL segments.

• Exceeding expectations. 1QFY23 core profit of MYR12.1m is at 28% of our and consensus’ expectations. We deem this to be in line with expectations, as the normalising freight rates are likely to lead to a slight tapering off of earnings on a sequential basis. On a YoY basis, 1QFY23 core profit grew 17.2% as revenue was up by 42% – likely attributable to the robust performance of the freight forwarding segment thanks to encouraging volumes seen during this period. No dividend was declared during the quarter under review.

• FM is positive on its growth momentum but is turning slightly mindful of the headwinds that lie ahead due to the global economic uncertainties. The continued pick-up in post-pandemic global trade flows upon the further reopening of the economy should act as an earnings driver, which ought to bode well for FM, complementing its ongoing customer acquisition efforts to support volumes moving forward. We gather that the group will continue to enhance its client portfolio for the 3PL segment, prioritising customers with quicker inventory turnovers and better credit terms. Elsewhere, we look forward to the lifting of the lockdowns in China, which should boost trade volumes for FM, while its additional warehousing space ought to help capture the high demand at present for warehousing amid the e-commerce boom, acting as a catalyst for the group’s currently underperforming 3PL business.

• Maintain BUY. We make no changes to our earnings forecast at this juncture, pending further clarity on FM’s prospects during the analyst briefing later today. Our TP of MYR1.01 includes a 6% ESG premium, as our 3.3 ESG score is above the 3.0 country median. We continue to like the group for its resilient business profile, undemanding valuations (>50% discount to KLTRAN forward P/E of 18x), and consistent dividend track record.

• Key downside risks include a rapid weakening in global trade flows and higher-than-expected opex.

Source: RHB Research - 30 Nov 2022