KEY INVESTMENT HIGHLIGHTS

• Land transportation led margin drop
• Warehouse utilisation rate expected to improve
• Reduced freight and project cargo volumes
• Downward revision of earnings between -14% to -16%
• Downgrade to NEUTRAL with a revised TP of RM0.46

Here are the main highlights of Swift's results briefing:

Land transportation drove the main drop in margin. The number of containers handled for haulage was higher than the quarterly figures in 1HFY24 but still lower by -1.6%yoy in 3QFY24. Revenue grew by +7.9%yoy mainly from higher rates driven by more long-haul trips. In contrast, the land transportation segment saw double-digit growth in trips as compared to 3QFY23, but rates declined due to a shift toward smaller trucking and shorter-haul trips. Management also highlighted that part of this segment had to be outsourced, leading to the lower margin.

The warehousing margin is set to improve. The margins for the warehousing and container depot segment remain below expectations due to high startup costs from the new Westports warehouse (269,000 sq ft) that began operations in Apr-24 and lost revenue as the Tebrau warehouse in Johor (200,000 sq ft) underwent renovations for a new client. The new FMCG client, which began fully occupying the Tebrau warehouse in Oct-24, is expected to increase its utilisation rate from below 50% to up to 70%. A new Perai Warehouse in Penang (+200,000 sq ft) is under construction, but its completion has been delayed to 3QFY25 from the previously expected 2QFY25. Once completed, it will expand Swift's owned/leased and operated warehouse portfolio to 1.9m sq ft (+12%) by the end of next year.

Lower freight and project cargo volumes. In the freight forwarding segment, the number of jobs increased substantially, but revenue declined due to fewer freight and project cargo shipments. However, PBT margin improved by +1.0ppts, likely due to a higher proportion of customs clearance jobs.

Downgrade to NEUTRAL. While our revenue estimates are on track, we have downgraded our earnings forecast for FY24E/FY25F/FY26F by - 16%/-15%/-14% to account for lower margins across the segments.

Consequently, our target price is now revised lower to RM0.46 (from RM0.54). We downgraded our call to NEUTRAL from BUY, as the stock is now trading close to the sector's 5-year historical mean at 10.5x FY25F EPS. A key upside to earnings is the potential for improved efficiency through economies of scale.

Source: MIDF Research - 15 Nov 2024