Swift Haulage Berhad is lookign to enter the Singapore logistics market with its Binding Offer with DLT Enterprise Pte. Ltd. to acquire the entire equity interest in Watt Wah Petroleum Haulage Pte. Ltd. which is 100%-owned by the latter.
The target company is primarily involved in chartering, forwarding, and transporting petroleum products. The entire equity interest in the target company is valued at SGD1.6m/RM5.2m and Swift intends to fully satisfy it by way of cash payment. Additionally, subject to the Acquisition Agreement, Swift will be required to repay the shareholder’s loan which amounted to SGD8.5m/RM27.7m (as of 30 June 2022) by refinancing it within 2 weeks of the completion date. MIDF does not see the move on the earnings estimate at this juncture.
The reaearch firms is in fact positive about the proposed acquisition as it supports Swift’s longer-term plan to increase its footprint in the region as currently it only has operations in Malaysia and Thailand. Historically, the Group has been part of several successful mergers and acquisitions including MISC Integrated Logistics and Tanjong Express. It was mentioned previously by the management that in increasing its market share, growing inorganically benefits them as it would be able to retain the truck drivers amid the industry-wide shortage.
As such MIDF maintains a BUY call on Swift with an unchanged TP of RM1.18 (PER of 18x). It likes the Group due to the following: (1) Swift being the dominant player in the container haulage business (9% market share in Peninsular Malaysia), (2) above average profit margins due to the large vehicle fleet that it owns and cost advantages from inhouse supporting services and (3) earnings resiliency due to its dependency on trade volume.
Downside risks include: (1) any delays in its primary warehouse capacity expansion plan and (2) lower gateway port
throughput arising from the supply chain issues (any weakness would onlybe observable in 3Q). Swift currently trades at 7x FY23F EPS vs. the simple average forward P/E of its peers of 15x, which MIDF believes is attractive
