• Still NEUTRAL, new MYR0.65 DCF TP (from MYR0.69), 7% upside. FY24 (Jun) core net profit missed expectations at 94% of our full-year forecasts. We maintain our rating and view on the stock, given the absence of exciting catalysts. FM Global Logistics’ valuation is fair, trading at 7.9x, in line with its 5-year mean. This report marks the transfer of coverage to Syahril Hanafiah.

• Missed expectations. Core earnings for the quarter were at MYR6.8m (-22% QoQ; -6% YoY), bringing the FY24 figure to MYR32.6m (-18% YoY), at 94% of our FY24 estimates. The main deviations were from the weaker-than- expected sea freight segment as well as contributions from the supporting services. FM declared a MYR0.03 DPS, bringing FY24 DPS to MYR0.04, above our MYR0.03 full-year estimate.

• Container volume analysis. Sea, air, and land freight FY24 volumes were at 114.3k TEUs, 9.1m kg, and 16.7k TEUs each, accounting for 109%, 92%, and 119% of our FY24 estimates. Compared to FY23, sea, air, and land freight saw +3.7%, -11.6%, and +30.3% YoY changes. Despite weaker air freight volumes, its FY24 gross profit improved 14% YoY, thanks to contribution from project works (ie aircraft parts movement). As a result, the air freight segment managed to fetch a 26.7% gross margin in FY24 from 19.5% in FY23. Overall demand for sea freight remained strong with full container load (FCL) volumes and less-than-a-container load (LCL) volumes recording 6.3% and 6.9% YoY growth.

• Outlook. We believe a recovery is in sight and gathering momentum despite being slower than expected. While land freight and third-party logistics (3PL) sectors continue to demonstrate promising prospects, management reiterated that sea freight will remain its main contributor. We stay cautious on the sea freight segment as we impute a conservative 2% volume growth. Management is guiding for overall FY25 earnings to revert to its long-term growth of 5-10%.

• Valuation. We trim our FY25-26 earnings forecasts by -3% and -2% post housekeeping adjustments, in addition to imputing lower margins for supporting services. Our DCF-derived TP is now MYR0.65 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, given the absence of exciting catalysts and as FM’s current valuation is fair, trading at 7.9x, in line with its 5-year mean.

• Risks. Downside risks include slower-than-expected volumes within the sea and air freight divisions, higher-than-expected opex, and a slowdown in global trade activities. The opposite represents upside risks.

Source: RHB Research - 28 Aug 2024