Swift Haulage Berhad is poised for a recovery in the second half of the financial year 2024 (2HFY24) despite challenges faced in the first half, as MIDF Stock Broking House maintains a BUY rating with an unchanged target price of RM0.54. Container haulage is anticipated to strengthen, alongside improvements in warehouse utilisation rates and potential growth in the land transportation segment through cross-selling opportunities.
In the second quarter of FY24, Swift reported a year-on-year decline in container volumes of 11.0%, primarily due to inefficiencies stemming from port congestion exacerbated by the ongoing Red Sea crisis. This situation led to a decrease in profit before tax (PBT) margin by 2.3 percentage points. However, the second half typically sees a stronger performance, historically contributing 55% of the group's annual volume. Projections indicate that container volumes for 2HFY24 could reach 332,376 TEUs, reflecting a growth of 3.0% for the full year. Additionally, a recovery in container haulage volumes is expected to boost freight forwarding activities, as Swift internally manages approximately 30% of its container haulage for its freight forwarding needs.
The warehousing and container depot segment is also expected to improve as utilisation rates increase. After completing renovations, the Tebrau warehouse, which spans over 200,000 square feet, is set to welcome an FMCG customer in the fourth quarter of FY24, potentially raising its utilisation from below 50% to around 80%. The newly acquired Perai Warehouse, covering 118,000 square feet, is already fully rented out, while the Westports Warehouse, measuring 269,000 square feet, boasts a utilisation rate exceeding 90%. Collectively, these developments contribute to a 30% increase in Swift's own and leased warehouse capacity for this year.
In the land transportation segment, Swift experienced a 23.1% year-on-year increase in the number of trips during 2QFY24, although the PBT margin fell by 2.0 percentage points due to reduced rates amid softer festive demand compared to the previous year. Nonetheless, there is optimism for further growth in this segment as warehouse utilisation improves, offering additional cross-selling opportunities in upcoming quarters.
Despite revising FY24F earnings downward by 12% to align with first-half operational statistics, the FY25F and FY26F estimates remain unchanged. The average land transportation rates have been adjusted downwards. Swift remains undervalued, trading at -0.5 standard deviations below the sector's historical mean. Key risks to the outlook include lower-than-expected gateway container throughput and reduced profit margins resulting from diseconomies of scale.
