Swift Haulage: Proxy To The Growing Demand for Logistics Services

It is now the largest haulier in Malaysia by total container volume handled, having the largest market share of 9% in the industry in 2Q22, 3x larger in size as compared to the second largest local haulier.

Swift Haulage: Proxy To The Growing Demand for Logistics Services

Despite operating an asset-owning business model which requires heavy capex, Swift Haulage managed to grow rapidly over the years via successful merger and acquisition (M&A) activities,

This creates value by turning around loss-making entities post-acquisition, thus enabling it to expand its capacity as well as venture into synergistic business segments at low costs.

It is now the largest haulier in Malaysia by total container volume handled, having the largest market share of 9% in the industry in 2Q22, 3x larger in size as compared to the second largest local haulier.

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Swift Haulage is a leading integrated logistics service provider headquartered in Klang, providing services such as container haulage, land transportation, warehousing & container depot, and freight forwarding.

High Utilisation Rate of Vehicles

Swift Haulage is able to achieve high utilisation rate for its vehicles through:

(i) its vast network of coverage;

(ii) significant market share in this fragmented industry;

(iii) having an integrated suite of products, which allows it to provide end-to-end services (creating synergies between its business segments); and

(iv) its strong customer base across the country (partly supported by stable contributions from blue-chip clientele with huge volume demand); these collectively contribute to the group’s exceptionally high margins as compared to its peers.

The group has also leveraged on technology (such as the digitalised operations central command centre) to carefully manage its trips to reduce futile trips and vehicle idle times, hence maximising the utilisation rate of its vehicles and overall profitability.

Proxy To Rising Demand For Supply Chain Logistics

"We believe Swift Haulage is well-positioned for the changed post-pandemic market, with the pandemic having caused businesses to realise the extent of their underinvestment in supply chain logistics in the past.

"Demand for supply chain logistics has risen significantly, partly driven by the rise of e- commerce, coupled with the trend towards supply chain integration by global businesses for a more resilient and reliable fulfilment support. This has attracted significant investor interest in the logistics industry, and we believe Swift Haulage is one of the proxies to capture this rise in demand," says Maybank.

Key Earnings Growth Drivers

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The analysts say they are projecting Swift Haulage’s core net profit to grow by a 3-year.

"We are projecting Swift Haulage’s core net profit to grow by a 3-year FY21- 24E CAGR of 11%, largely attributed to its recent capacity expansion.

"That is purchase of 30 new prime movers, warehouse expansion, and the new venture into cold chain logistics via the acquisition of Hypercold Logistics (50% equity interest) and Platinum Coldchain Sdn Bhd (15% equity interest), coupled with recovery from a low base due to pandemic-induced disruptions," says Maybank.

These will also contribute to its margin expansion, as operational efficiencies improve alongside better economies of scale.

Over the longer-term, Swift Haulage will continue to focus on its strengths to grow its business via M&As (to increase market share and strengthen its market position), wallet share increases among its existing major customers (to increase customer stickiness and establish a stable revenue stream with quality customers), as well as capitalising on its strategic vacant land banks (by building warehouses/converting them into container yards) acquired at low prices, which could generate good returns.

Initiate coverage with BUY rating and a TP of MYR0.65

"We initiate coverage on Swift Haulage with a BUY recommendation and TP of MYR0.65, pegged to an EV/EBITDA multiple of 7.0x, in-line with the industry’s 5-year historical EV/EBITDA median multiple (median value is used to exclude the skewed data resulting from volatile earnings).

"At MYR0.65, Swift Haulage will be trading at an implied PER of 9.9x for FY23E, which is still at a significant discount to its peers’ median historical PER of 14.3x. We believe the lower implied PER is fair at this point in time, to reflect a higher risk premium on the back of an increasingly challenging operating environment, as well as Swift Haulage’s high net gearing as compared to its peers."

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Risk Factors

Key risks to our forecasts include:

(i) lower-than-expected utilisation rate for its vehicles/warehouses as demand weakens, which may lead to diseconomies of scale;

(ii) weakening transportation/warehousing rates;

(iii) market share loss;

(iv) higher-than-expected costs due to inflation/ rising interest rates; and

(v) removal of fuel subsidies/ineffective costs pass- through mechanisms, which may all lead to subdued margins.