SWIFT’s 1HFY24 results disappointed. Its 1HFY24 core net profit declined 25% YoY due to start-up costs from a new warehouse and loss of operational scale due to the global shipping disruption. We cut our FY24-25F net profit forecasts by 16% and 9%, respectively, reduce our TP by 2% to RM0.50 (from RM0.51) but maintain our MARKET PERFORM call.

Its 1HFY24 core net profit (excluding one-offs of RM13m) disappointed, coming in at only 37% and 39% of our full-year forecast and the full- year consensus estimate, respectively. The variance against our forecast came largely from higher-than-expected start-up costs from its new warehouse in Westport and loss of operational scale at its container haulage, land transportation, and freight forwarding businesses due to the global shipping disruption arising from the Red Sea conflict. The group declared a first interim dividend of 0.8 sen, as expected.

YoY, its 1HFY24 revenue rose 7% driven by stronger performance across all segments:- (i) container haulage (+3%) and freight forwarding (+1%) as gateway container volume remained strong on the back of brisk exports by local manufacturers (partly fuelled by the weak MYR), (ii) land transportation (+9%) with increased transportation activities for petrochemical products, particularly for the Petronas group of companies (close to 20% of revenue), and (iii) warehousing and container depot (+17%) with the increased capacity utilisation by new customers.

However, its core net profit declined by 25% due to: (i) start-up costs from the new warehouse in Westport, (ii) loss of operational scale at its container haulage, land transportation, and freight forwarding businesses due to the shipping disruption, particularly, long-haul routes such as Asia-Europe and Asia-America, and (iii) higher finance cost (+11%) on warehouse expansion.

QoQ, its 2QFY24 revenue fell 4% dragged by container haulage (-3%), land transportation (-7%) and freight forwarding (-4%), due to ports congestion which restrict movement within and out of the ports which more than offset higher revenue from warehousing and container depot (+3%) with the increased capacity utilisation by new customers. However, its core net profit rose 5% mainly driven by investment tax allowance.

Still in expansion mode. 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), cold chain warehouse in Sabah (from 27k sq ft to 57k sq ft, Westport on-dock depot (5 acres for 4,000 TEUs), Westport warehouse, Pulau Indah, Selangor (260k sq ft; operation started in March 2024), and a warehouse in Seberang Perai, Penang (118k sq ft; acquisition completed recently), as well as commenced warehouse management and transportation services in Pengerang for Petronas (c.1.17m sq ft).

Its on-going expansion plan include the biggest green logistics hub in Asia (outside China) under 30%-associate GVL (first phase of 2.8m sq ft by Nov 2025, 6.0m sq ft when fully completed by 2028).

Forecasts. We cut our FY24-25F net profit forecasts by 16% and 9%, respectively.

Valuations. However, we only trim our TP by 2% to RM0.50 (from RM0.51) as we roll forward our valuation base year to FY25F (from FY24F). Our valuation basis is unchanged at 10x forward PER, in line with the average forward PER of the local logistics sector. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

Investment case. 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 e-commerce. However, we believe the current market valuations have fully reflected its fundamentals. Maintain MARKET PERFORM.

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

Source: Kenanga Research - 13 Aug 2024