Red Sea Conflict Weighs On SWIFT Haulage: Kenanga Research

SWIFT Haulage’s FY23 results met forecasts but beat market expectations by 31%.

Kenanga Research, in a note today (Feb 26) said its FY23 core net profit declined 11% due to higher operating and interest costs, an inevitable price to pay for aggressive expansion

Kenanga has since cut their FY24 net profit forecast by 12% to reflect the escalating Red Sea conflict. Correspondingly, they reduced their TP by 13% to RM0.55 (from RM0.63) and maintain a MARKET PERFORM call.

SWIFT Haulage declared an interim NDPS of 0.8 sen vs 1.0 sen in 4QFY23, which bring full-year NDPS to 1.6 sen vs 1.0 sen in FY22, within expectations.

YoY, its FY23 revenue grew 4% driven by: (i) land transportation (+14%) with the increased transportation activities for petrochemical products, particularly for the Petronas group of companies (close to 20% of revenue) and (ii) warehousing and container depot (+19%) with the increased capacity utilisation by new customers. These more than offset the weaker container haulage (-4%) and freight forwarding (-14%) from the lower gateway volume toward the year-end particularly from Johor port.

However, its core net profit declined by 11% due to higher operating expenses (+11%) and finance costs (+27%) to support its warehouse expansion and green fleet initiatives, namely: (i) the addition of two units of fully-electric prime movers (c.RM1.5m each), and (ii) the full upgrade of its ICE prime mover fleet to the state-of-the-art fuel-efficient Euro 5 model from the Euro 3 model, expected to be completed by April 2024 (currently, SWIFT owns 1,546 prime movers).

QoQ, its 4QFY23 revenue rose 3% driven by higher demand for its land transportation (+9%) and warehousing and container depot (+7%), which more than offset the weaker contribution from its container haulage (0%) and freight forwarding (-7%). Its core net profit rose by a steeper 24% largely due to the utilisation of the investment tax allowance (ITA).

The key takeaways from its results briefing are as follows:

1. SWIFT echoed WPRTS’s guidance for a low single-digit container volume growth rate in FY24 as it believes the Red Sea conflict, if prolonged, will weigh on the Europe-Asian trade. Nonetheless, it is slightly more positive on FY25, guiding for a single-digit container volume growth rate. SWIFT depends more on gateway cargoes which have since weakened to a single-digit growth (vs. double-digit in 1HCY23). Thus, we lower our volume growth assumption to 2% (from 7%) in FY24 for its container haulage segment and introduce the same assumption for FY25.

2. Its new warehouse in Westport (260k sq ft) will commence operation on 1 Mar 2024 with 70% of space taken up by Sharp (distributor of white goods). Meanwhile, its Tebrau warehouses (200k sq ft) will onboard a new customer in Apr 2024, boosting its occupancy rate to 80% (from 60%). It hopes to lease the remaining 20% to Singapore-based businesses as their distribution hubs given the warehouse’s proximity to Tuas Second Link. However, occupancy of its PKFZ warehouse (178k sq ft) is unchanged at 30% from three months ago.

It is in active discussions with potential tenants. In terms of total warehouse space, we maintain our assumption of 1.7m sq ft in FY24F (+30%) and introduce an assumption of 1.9m sq ft (+17%) for FY25F.

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