Swift Haulage Berhad - Looking forward to better 2H
Mon, 12-Aug-2024 04:41 pm
by Jayden Tan • Apex Research

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SWIFT (5303)

Target Price (RM)

0.62

Recommendation

Buy

Summary

SWIFT’s 2QFY24 core net profit RM8.3m came below our expectations, primarily due to weaker-than-expected margins in the container haulage and land transportation segments.

We remain optimistic over the Group’s 2H24 recovery supported by improvements in container throughput and contribution new warehouse.

Maintained our BUY recommendation with lower target price of RM0.62.

 

Results Review

  • Results review. 2QFY24 core net profit at RM8.3m, reflecting flattish qoq performance and a 14.6% decline yoy amid higher finance costs. Revenue for the quarter showed a decline of 3.6% QoQ but an increase of 4.7% YoY. Along with the results, the Group declared a dividend of 0.8 sen per share during the quarter.
  • Earnings missed expectation. Reported core net profit in 6MFY24 at RM19.9m came below our expectations, accounting for only 37% of full-year forecast, despite revenue meeting 49% of the full-year projection. The shortfall was primarily due to weaker-than-expected margins from container haulage and land transportation segments.

  • Operations Highlights. Experienced a decrease in job volume across the Container Haulage, Land Transportation, and Freight Forwarding segments compared to the previous quarter. The decline is touted be impacted by fewer working days due to the festive season in April and the inefficiencies in customer volumes caused by port congestion challenges. Additionally, margin for the Land Transportation business (PBT: RM1.8m) dropped significantly, with a 4-percentage point decline in PBT margin yoy and qoq. This was due to lower pricing aimed at maintaining competitiveness, as observed by the reduced revenue per trip, while the cost environment remained challenging. The Warehousing and Container Depot segment also disappointed, with both revenue and profit remaining flat for the quarter, despite the new 270,000 sqf warehouse in Port Klang became operational.

  • Industry Highlights. Over the past few months, the Red Sea crisis has led to escalating port congestion in Asia ports, impacting the throughput volumes. However, congestion has slightly eased recently as liners have adapted to rerouting and scheduling changes.

  • Outlook. Despite the 2QFY24 earnings missed expectations, we remain optimistic that recovery are on the cards in 2HFY24. This is supported by improvements in container throughput as congestion eases and the contribution from the new Penang warehouse.

  • Valuation. We trimmed our earnings forecast by -11% for FY24F and -8% for FY25F, primarily due to the challenging operational environment affecting margins in the land transportation segment. Additionally, we have introduced our FY26F earnings estimate at RM61.9m, reflecting a +11% yoy growth. Consequently, we have adjusted our target price to RM 0.62 in line with the earnings downgrade. Despite the unremarkable earnings growth outlook at this juncture, we maintain a BUY recommendation on SWIFT, supported by its relatively undemanding valuation (1-year forward PER of 8.0x) compared to its peers’ average of 10.0x.

  • Risk. Further margin compression on competitive pricing and cost pressure environment and escalating expenses from depreciation and finance cost due to capacity expansion.

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