• Still NEUTRAL, with new MYR0.59 TP (DCF) from MYR0.65, 0% upside, c.6% FY25F (Jun) yield. FM Global Logistics’ 1QFY25 core net profit missed expectations at 16% of our full-year forecasts. We maintain our rating and view on the stock, given the absence of exciting catalysts. Its current valuation is fair, trading at 7.4x, in line with its historical mean.

• 1QFY25 missed expectations. 1QFY25’s revenue came in at MYR253.7m (+14.5% QoQ, +34.2% YoY), as forwarding and supporting services segments posted YoY topline growths, offset by a decline in 3PL (third-party logistics) and warehousing segment. However, core net profit fell 23% YoY (+3% QoQ) to MYR7m. This was below our expectations, accounting for 16% of full-year estimates for FY25. The deviation was mainly due to higher-than-expected operating expenses. Segmental wise, FM managed to record double-digit growths YoY in gross profits across its freight divisions, mainly supported by elevated freight rates. Sea freight remains its biggest contributor, recording a gross profit of MYR36.4m (+18% YoY). This segment makes up 56% of FM’s gross profit for the quarter.

• Container volume analysis. Sea, air, and land freight 1QFY25 volumes were at 31.8k TEUs, 9.3m kg, and 17.2k TEUs, accounting for 27%, 25%, and 26% of our FY25 estimates. Compared to FY24, sea, air, and land freight saw +18%, +16%, and +8% YoY changes. Though volumes increased, both sea and air freight segments faced GP margin erosion during the quarter. Sea freight margin slipped to 23.5% (from 29.3% in 1QFY24) while air freight margin dropped to 26.2% (from 28.9% in 1QFY24). Given that the group adopts cost plus approach for the freight forwarding segment, the margin fluctuations were likely due to lag in repricing, and hence are expected to normalise once freight rates become more stable.

• Outlook. The YoY earnings increase proves our recovery thesis despite being slower than expected. We think land freight and 3PL sectors will continue to demonstrate promising prospects, but management reiterates that sea freight will remain its main contributor. We remain cautious on the sea freight segment as we impute a conservative 2% growth. Management is guiding overall FY25 earnings to revert to its long-term growth of 5-10%.

• Valuation. We trim our FY25 earnings forecast by 14% after imputing higher operating expenses but keep our FY26-27F earnings unchanged. Our DCF- derived TP is now MYR0.59 after incorporating a 6% ESG premium (as FM’s ESG score of 3.3 is above the country median). We maintain our NEUTRAL rating on the stock, given the absence of exciting catalysts and as FM’s current valuation is fair, trading at 7.4x – in line with its 5-year mean.

• Key risks include slower-than-expected volumes within the sea and air freight divisions, higher-than-expected opex, and a slowdown in global trade activities.

Source: RHB Securities Research - 27 Nov 2024