• Maintain HOLD (TP: RM0.55). Swift's FY23 Core PATAMI of RM38.8mn (-20% YoY) fell short of our expectations, accounting for only 85% of our forecast. This deviation was primarily attributed to higher-than-expected operating costs and interest expenses. The group declared a 2nd interim DPS of 0.8sen, bringing the YTD DPS to 1.6sen, translating into a DY of 2.9%. In 4QFY23, Swift reported a revenue increase (+3.1% QoQ, +5.6% YoY) and core PBT growth (+179% QoQ, +5.6% YoY), driven by a stronger seasonal performance. Revenue was bolstered by a higher contribution from Land Transportation (+8.6% QoQ, +14.6% YoY) due to increase in fleet capacity, and the Warehousing & Container segment (+0.3% QoQ, +17.2% YoY) from newly added warehouse capacity. We maintain caution on the near-term volume outlook for the Container Haulage and Freight Forwarding segments, but anticipate improved long-term earnings prospects supported by the expansion of Warehouse & Container Depot capacity. Additionally, we are wary of rising expansion costs that could potentially erode margins; hence, we revised our FY24 earnings forecast lower by -15%. Consequently, our TP is lower to RM0.55 (from RM0.58), based on a PER of 11x (Swift’s hist. avg. forward PE) to FY24 EPS of 5sen. Maintain HOLD call.

• Key highlights. Swift's 4QFY23 revenue and core PBT increased to RM173.3mn (+5.6% QoQ) and RM13.9mn (+179.7% QoQ) respectively, driven by a stronger seasonal performance during the year-end peak period and festive holidays, as well as overall lower operating costs. Based on a segmental breakdown, the higher revenue growth was largely propelled by the Land Transportation segment (+8.6% QoQ) due to an increase in fleet capacity, which mitigated the lower growth in the Freight Forwarding segment (-6.9% QoQ), likely caused by a drop in port throughput volume. Nonetheless, Swift's full-year FY23 core PBT of RM43.7mn dropped by -29.8% YoY, and the majority of the business segments experienced margin contraction due to higher overall operating expenses.

• Earnings Revision. We revised lower our FY24 earnings forecast by -15% as we increased higher operating cost assumptions and introduce our FY25F figures.

• Outlook. While maintaining optimism for Swift's long-term prospects, we are cautious in the near term amidst prevailing macroeconomic challenges. A potential global trade slowdown could affect container haulage and freight forwarding volumes. Despite ongoing capacity expansion in the Warehouse & Container Depot segment which is expected to bolster Swift's long-term earnings and margins, near-term uptake rates and economies of scale may be slow, in our view.

Source: BIMB Securities Research - 26 Feb 2024