Target Price: MYR1.68
Outlook Remains Bright
Freight Management (FMH)’s robust FY13 results were mainly attributed to its asset-light business, which helped it to weather difficult times. Nonetheless, we are paring our FY14F/15F earnings forecasts as the fuel price hike may lead to rising operating cost. Despite this, we are still positive on the company’s potential growth. Maintain BUY, with a MYR1.68 FV.
• Results spot on. FMH’s FY13 net earnings of MYR22.3m (+8.1% y-o-y) were within expectations. While its sea and land freight division remained the main earnings contributor, the tug & barge and third-party logistics (3PL)/warehousing units continued to be strong growth drivers. Despite the overall sluggish export numbers, its sea freight volume continued to grow as its diversified client base predominantly consists of small and medium enterprises. Furthermore, its customers are mostly centred in Asean, where trade continues to grow.
• Bright prospects. We believe FMH’s growth will remain on track, mainly due to: i) its tug & barge JV with Scomi Energy Services (SES MK, NR), and ii) its soon-to-be-constructed warehouse. Recently, it also incorporated a 50%-owned subsidiary in the Philippines, on which we are positive in the longer run given the country’s economic outlook.
• Earnings revision. We factor in higher operating costs following the petrol price increase. This is because despite FMH’s ability to pass on the higher cost to most of its customers, its earnings will be affected by a lag in implementation. As such, we pare our earnings forecasts to MYR24.8m/MYR29.8m from MYR25.3m/MYR30.8m for FY14F/15F respectively. Notable risks are: i) a slowdown in the global and local economy, ii) intensifying competition in the sector, and iii) investment risks in new markets.
• Maintain BUY. We continue to like FMH’s asset-light business that has proven to be viable in tough times, coupled with the growth potential from its 3PL and tug & barge divisions. Following the earnings revision, our FV is now at MYR1.68, based on a 11x FY14F P/E vs the 10.1x sector average. The premium applied on FMH is due to its high ROE and consistent growth track record. Maintain BUY.
Publish date: 25/09/13