SWIFT's 9MFY24 core net profit met our expectation despite plunging 35% YoY due to start-up costs from a new warehouse and loss of operational scale arising from global shipping disruption.

We expect a stronger quarter ahead as port congestion has eased, on the usual year-end festivities and to a certain extent from container volume frontloading activities due to potential US trade tariff hikes on China. We maintain our forecasts, TP of RM0.50 and MARKET PERFORM call.

Its 9MFY24 core net profit (excluding one-offs of RM13m) came in at only 60% and 55% of our full-year forecast and the full-year consensus estimate, respectively. However, we deemed it as within our expectation, anticipating a stronger upcoming 4Q results arising from:

(i) easing port congestion, (ii) usual year-end festivities, and (iii) to a certain extent, container volume frontloading activities on the possible US-China trade tariff hikes under the in-coming Trump administration.

YoY, its 9MFY24 revenue rose 8% driven by stronger performance across all segments:- (i) container haulage (+5%) and freight forwarding (+7%) as gateway container volume remained strong on the back of brisk exports by local manufacturers (partly fuelled by the weak MYR), (ii) land transportation (+7%) 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 (+16%) with the increased capacity utilisation by new customers.

However, its core net profit declined by 35% 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 (+9%) on warehouse expansion.

QoQ, its 3QFY24 revenue rose 6% driven by stronger container haulage (+7%), land transportation (+1%) and freight forwarding (+17%), as ports congestion eased while higher warehousing and container depot (+8%) with the increased capacity utilisation by new customers. However, its core net profit fell 29% mainly due to the higher operating expenses in line with the increased business activities.

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 Mar 2024), and another warehouse in Seberang Perai, Penang (118k sq ft; acquisition completed in Aug 2024), as well as commenced warehouse management and transportation services in Pengerang for Petronas (c.1.17m sq ft). We expect SWIFT to further its expansion in the northern region, i.e. Kedah, due to the recent jump in FDI there.

Its on-going expansion plan includes the biggest green logistics hub in Asia (outside China) under 30%-associate GVL (first phase of 2.8m sq ft by Nov 2025 and 6.0m sq ft when fully completed by 2028) which is on track and expected to contribute earnings starting 4QFY25.

Forecasts. Maintained

Valuations. We also maintain our TP of RM0.50 based on unchanged FY25F PER of 10x, 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 7% 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 - 14 Nov 2024