• Still BUY and MYR1.01 TP, 65% upside and c.7% yield. 1HFY23 (Jun) results met expectations on the freight forwarding segment that demonstrated steady volume growth despite a weaker operating environment. This is further complemented by its robust performance in the 3PL space and last-mile segment that returned to profitability amidst a competitive environment on FM Global Logistics’ business-to-business or B2B model. We see earnings to continue being supported by its diversified operating wings. This report marks the coverage transfer to Alexander Chia.

• In line with expectations. FM’s 2QFY23 core earnings reached MYR10.9m (-9.7% QoQ; +1.2% YoY), bringing 1HFY23 figure to MYR22.9m. This came within expectations at 52% of our and Street full- year estimates. The overall performance for the quarter remained satisfactory, mainly cushioned by the positive growth in business volume (+5.7% QoQ; +6.1% YoY), spurred by the affordability of freight rates. A single tier interim dividend of 1 sen/share was declared for the quarter under review.

• Segmental performances are encouraging, except for land freight. 1HFY23 observed a decent double-digit growth YoY in both revenue and gross profit, at +11.0% and +18.8%. We note that land freight’s profitability remained lacklustre, eroded by higher costs from investments in new assets as a result of the group’s effort in revamping the segment. Nevertheless, it was well mitigated by the strong performance in other segments, namely 3PL and supporting services thanks to their stronger customer base and higher activity volumes.

• Well-positioned amid the headwinds. With regards to global economic uncertainties, we are of view that the resilient business profile of FM will continue to bode well for the group. In terms of freight rates, we believe that the rate has stabilised and the positive total trade and GDP outlook locally should lead to positive throughput volume growth in the near term. Moving forward, the group is optimistic in sourcing new customers for both freight and 3PL segments, which should continue to support business volumes. FM will still prioritise clients with quick inventory turnaround, as well as those that require ancillary and value-added services within the 3PL space. Land freight should also see better profitability once the group solidifies the business and moves away from outsourced equipment.

• Maintain BUY. We keep our earnings forecasts unchanged at this juncture as results were in line. Our TP of MYR1.01 incorporates a 6% ESG premium and translates to an undemanding forward P/E of 7.75x, which is below its historical and local peer average. We continue to prefer FM as a logistics player in the service provider space for its multi-modal business model, which has partly sheltered the group from an unfavourable business environment, solid earnings, and consistent dividend track record.

Source: RHB Research - 23 Feb 2023