• MYR0.11 FV based on 11.5x FY24F P/E. Sin-Kung Logistics intends to raise MYR26.6m from its IPO, primarily to fund its expansion plan in warehousing and distribution, as well as for the purchasing of commercial vehicles. We expect the group’s expertise in airport-to-airport transfer services, coupled with its growing warehouse segment, to propel its 3-year earnings CAGR of 16.8% from 2023 to 2026. At the IPO price of MYR0.13/share, Sin-Kung is priced at a trailing P/E of 24x FY23 EPS – which is rich, in our view.

• Logistics player with specialisation in airport-to-airport feeder services. While most public listed logistics players in Malaysia primarily focus on freight forwarding, last-mile delivery, warehousing & distribution, and haulage services, Sin-Kung specialises in trucking – particularly airport-to-airport transfers. This enables the group to enjoy much better margins compared to its logistics peers/customers due to its niche services that command better pricing premiums. For FY23, airport-to-airport feeder services contributed 52% and 49.5% to Sin-Kung’s group revenue and GP.

• New warehouse contributions to only be kick in from 2H26 onwards. SinKung has entered into a sale & purchase agreement (SPA) a developer for the Valdor Office and Warehouse (Valdor Warehouse). The latter has a total builtup area of c.164,000sq ft and annual capacity c.192,000 pallets. This would be the group’s main expansion plan post its listing and will be to cater to its customers based in West Malaysia’s northern region. As at last practicable date (LPD), earthworks have been commissioned by the developer for the construction of the new warehouse, which is expected to be completed within 36 months upon the signing of the SPA. Subsequently, Valdor Warehouse is expected to only commence operations by 4Q26. The current capacity of SinKung’s existing warehouse in the northern region is 58,812 pallets, which increases to 250,812 pallets post the commencement of Valdor Warehouse.

• Earnings forecast and valuation. We project a 3-year FY23F-26F earnings CAGR of 16.8% and expect a bumper FY24 due to: i) A lower effective tax rate (due to a tax allowance recognition), ii) pick-up in air cargo demand, and iii) normalisation of opex. At the IPO price of MYR0.13/share, Sin-Kung is priced at a trailing P/E of 24x FY23 EPS. We ascribe an 11.5x P/E to its FY24F earnings to derive our FV of MYR0.11. The valuation is a 15% premium vs the local listed logistics players’ 10.1x. This is due to Sin-Kung’s niche business segment, which offers a better ROE.

• Key risks: i) Loss of major customers (Customers A and C), ii) slowdown in economic activities, and iii) lower-than-expected air cargo demand.

Source: RHB Research - 2 May 2024