• Still NEUTRAL, new MYR0.69 TP (DCF) from MYR0.64, 9% upside, c.6% FY25F (Jun) yield. 9MFY24 core net profit met expectations at 74% of our full-year forecasts. We maintain our rating and view on the stock, given the absence of exciting catalysts. FM Global Logistics’ current valuation is fair, trading at 8.1x, in line with its 5-year mean.

• 9MFY24 within expectations. Core earnings for the quarter were at MYR8.7m (+10.6% QoQ; -18.3% YoY) after stripping off exceptional items. This brought the 9M24 figure to MYR26.8m (-21.1% YoY), at 74% of our FY24 estimates. While FM still recorded a YoY decline, the pace of decline has moderated, and we saw QoQ sequential improvement in 3QFY24. The group saw a mixed performance across business segments, with weakness in its sea freight and supporting services divisions offset by encouraging growth in third-party logistics (3PL), land, and air freight.

• Container volume analysis. Sea, air, and land freight 9MFY24 volumes were at 84,007 TEUs, 6.401m kg, and 12,361 TEUs each, accounting for 80%, 65%, and 88% of our FY24 estimates. Compared to 9M23, sea, air, and land freight saw -5.2%, -23.3%, and +23.7% YoY changes. Although air freight volumes continued to underperform, 9MFY24 GP improved 8.2% YoY, thanks to contribution from project works (ie aircraft parts movement). 3Q24 full container load (FCL) volumes were relatively stable at 24,276 TEUs (+3.2%), with lower sea FCL compensated by a robust 38% growth in land FCL.

• Outlook. While prospects and growth opportunities for land freight and 3PL remain exciting, FM’s outlook is clouded by weakness and lukewarm performances in the ocean freight (58% of group 3QFY24 GP) and air freight segments (7.8%). Although Red Sea Crisis tensions have led to higher ocean freight rates, the increases are fully passed on to customers, resulting in a neutral impact on FM. If demand rises significantly and supply constraints tighten, major volume forwarders like FM could see better pricing opportunities.

• Valuation. We maintain our earnings forecasts as results are in line. We take this opportunity to roll-over our valuation year to FY25F and our DCF- derived TP is now MYR0.69 after incorporating a 6% ESG premium (as FM’s ESG score of 3.3 is above the country median). We also keep our NEUTRAL rating on the stock, given the absence of exciting catalysts and as FM’s current valuation is fair, trading at 8.1x, in line with its 5-year mean.

• Key risks include slower-than-expected volumes within the sea and air freight divisions, higher-than-expected opex, and a slowdown in global trade activities.

Source: RHB Research - 27 May 2024