Swift Haulage Berhad - Expecting earnings to gradually recover
Thu, 14-Nov-2024 07:13 am
Apex Research

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SWIFT (5303)

Target Price (RM)

0.580

Recommendation

Buy

Summary

  • SWIFT’s 3QFY24 CNP RM5.8m (-5.7% yoy, +0.9% qoq), bringing 9MFY24 CNP to RM19.7m (-24.0% yoy) came in only at 50% and 53% of ours and consensus expectations respectively.

  • We anticipate a seasonally robust performance in 4QFY24, driven by increased occupancy and capacity utilisation of warehouses.

  • We maintain our BUY recommendation with lower target price of RM0.58 based on 9.0x PE multiple pegged to rolled-over FY26F EPS of 6.5 sen.

 

Company Update

  • Results review. SWIFT reported a core net profit (CNP) of RM5.8m, reflecting flattish qoq performance and a -5.7% yoy decline, the latter attributed to lower profit margin and higher finance costs associated with capacity expansions. Quarterly revenue rose 5.9% qoq and 8.9% yoy to RM183.1m, driven by seasonally stronger 2H and higher contributions from the Warehouse & Container Depot (WCD) segment.

     

  • Earnings missed expectation. 9MFY24 CNP at RM19.7m missed expectationsat only 53% and 50% of our and consensus full-year forecasts, respectively, despite revenue achieving 75% of our full-year projection. The shortfall was mainly attributed to higher depreciation costs and lower-than-expected profit margins in the land transportation and warehouse segments, due to warehouse capacity expansions.

     

  • Operations Highlights. During the quarter, Swift recorded higher revenue across all segments yoy and qoq, driven by seasonally stronger 2H performance and contributions from the expanded warehouse capacity, which provided synergies to other segments. However, bottomline was impacted by higher depreciation and finance costs, stemming from the capacity expansions, particularly in the warehouse segment, amid intense competition. On a positive note, the freight forwarding business delivered a strong performance, with PBT rising 36% yoy and 25% qoq, largely due to freight rates normalising from their peak since Jul 24.

     

  • Industry Highlights. External headwinds, including global economic uncertainties, persistent geopolitical tensions, and intense competition, continue to pressure profitability, creating challenging and ambiguous market conditions for the industry.

     

  • Outlook. We view the recent performance weakness to be temporary in anticipation of seasonally robust performance in 4QFY24, driven by recovery in occupancy rates at the Tebrau warehouse (estimated to rebound to 80%) with the addition of a new FMCG customer, and the full contribution from the Seberang Prai warehouse.

     

  • Valuation. Revised our earnings forecasts downward by -22.6%/-17%/-6.8% for FY24F/FY25F/FY26F in reflection ofweaker PBT margin assumptions for the land transportation and WCD segments by 3%/3%/1% and 2%/2%/1%, respectively. Maintain our BUY recommendation with a lower target price of RM0.58 aswe roll over our valuation metrics to FY26F with an unchanged 9.0x PE multiple pegged to EPS of 6.5 sen, as we anticipate a gradual earnings recovery supported by the contributions from the expanded warehouse capacity.

                                                                                                                             

  • Risk. Margin further denting with competitive pricing and cost pressure environment and escalating expenses from depreciation and finance cost due to capacity expansion.

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Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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