Swift Haulage Berhad’s (Swift) wholly-owned subsidiary, Swift Integrated Logistics Sdn Bhd (SILS), had entered into a share sale agreement to purchase the entire equity interest in Standard Marine Agencies (Sarawak) Sdn Bhd. The purchase consideration of RM1.4m is to be fully funded by internally generated funds. The deal has been completed on May 2, 2023 upon the completion of the share sale agreement.
MIDF views the deals presents an opportunity for Swift to upsell its services within the vicinity given that most of its ocean freight forwarding jobs is for the East-West Malaysia route. By growing through acquisitions, the Group will be able to retain the target company’s truck drivers amidst the current industry-wide shortage. So far, Swift is only providing cold-chain logistics services in Sabah via its 50%-owned Hypercold Logistics Sdn Bhd and 15%-owned Platinium Coldchain Sdn Bhd.
The company has a cash balance of RM51.4m as at end-FY22, which should be sufficient to internally fund the acquisition. MIDF makes no changes to our earnings estimates pending further information from the management. The house can anticipate an improvement in margins for Swift’s transportation businesses following the completion of its cost pass-through exercise in 4QFY22. Earnings growth will primarily stem from its warehousing segment, driven by the full-year revenue contribution from the +42% increase in available capacity that was gradually added to its portfolio of ‘own and operate’ warehouses last year.
Swift is one of the top picks for the sector as: (i) it achieves superior margins due to its large in-house assets, (ii) it is a direct beneficiary of growing external trade as it dominates the container haulage space (9% market share) and (iii) it is insulated from the volatility of international freight rates. Key downside risks are: (i) weaker-than-expected gateway port throughput and (ii) lower-than-expected take up rates for its new and extended warehouses.
The house maintains BUY on Swift with an unchanged TP of RM0.90 (based on FY23E PE of 15x). The stock currently
trades at a -48% discount to the sector’s historical mean
