SWIFT is acquiring a 101k sq ft warehouse with an attached 31k sq ft office block in Seberang Perai, Penang, for RM30.2m cash. The acquisition will boost its warehouse capacity in Penang by 45% to 323k sq ft (from 222k sq ft), which is also well within its warehouse capacity growth target of 1.7m sq ft in FY24. We maintain our forecasts, TP of RM0.63 and OUTPERFORM call.

A new warehouse in Seberang Prai, Penang. SWIFT is acquiring a 101k sq ft warehouse with an attached 31k sq ft office block in Seberang Perai, Penang for RM30.2m cash from TOCEAN (Not Rated). The proposed acquisition is expected to be completed by 1QCY24.

At the RM30.2m price tag, this translates to RM228 per sq ft (psf). A quick online check shows that asking prices for comparable property surrounding the area range between RM272 psf and RM400 psf. We believe SWIFT is getting a decent deal here.

The warehouse is located just right next to SWIFT’s northern region office beside the TOCEAN’s warehouse. The acquisition will boost its warehouse capacity in Penang by 45% to 323k sq ft (from 222k sq ft), which is also well within its warehouse capacity growth target of 1.7m sq ft in FY24. Post the acquisition, SWIFT’s net gearing will rise from 0.96x to 0.98x which is not excessive for a capital-intensive warehousing business.

To recap, SWIFT has completed the expansion of its warehouses in Tebrau (from 108k sq ft to 308k sq ft), Seberang Prai (from 113k sq ft to 222k sq ft), Port Klang Free Zone warehouse (178k sq ft), and cold chain warehouse in Sabah (from 27k sq ft to 57k sq ft, as well as commenced warehouse management and transportation services in Pengerang for Petronas (c.1.17m sq ft).

Its on-going expansion plans include: (i) Westport on-dock depot (5 acres for 4,000 TEUs by year-end), (ii) a warehouse in Seberang Perai, Penang (101k sq ft; acquisition completion by 1QCY24), (iii) Westport warehouse, Pulau Indah, Selangor (260k sq ft; completion by 1QCY24), and (iv) the biggest green logistics hub in Asia (outside China) under 42.5%-associate GVL (first phase of 2.8m sq ft by May 2025, 6.0m sq ft when fully completed by 2028).

Forecasts. Maintained.

We also maintain our TP of RM0.63 based on an unchanged FY24F PER of 10x, in-line with local logistics sector benchmark. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We like SWIFT for: (i) its leading position in the Malaysia haulage market commanding close to 10% share, (ii) its value-adding integrated offerings resulting in a superior pre-tax profit margin of c.10% compared to the industry average of 4%, and (iii) the tremendous growth potential of its warehousing business, riding on the booming domestic ecommerce. Maintain OUTPERFORM.

Risks to our call include: (i) sustained high fuel cost, (ii) global recession hurting the demand for transportation service, and (iii) delays in its primary warehousing expansion plan.

Source: Kenanga Research - 29 Nov 2023