Outlook for Freight Management’s sea freight unit seen to remain good

TheEdge Wed, Mar 13, 2019 11:08am - 5 years View Original


Freight Management Holdings Bhd
(March 12, 57.5 sen)
Maintain buy with a lower target price (TP) of 67 sen:
We are resuming our coverage on Freight Management Holdings Bhd. For the second half of financial year ending 2019 (2HFY19), core earnings are set to be stronger year-on-year, as we expect higher volumes from the sea freight segment and lower losses from an associate operating barges and tugboats. Its yield is the highest among logistics stocks under our coverage. Management is also prudent, with net gearing staying consistently below 30%.

Freight Management announced its bonus issue on Oct 24, 2018 and completed the exercise on Dec 13, 2018. After the bonus issue, total shares will increase to 279.2 million.

We gathered that the outlook for the sea freight segment remains good, as volumes are still growing despite a slower growth due to the ongoing US-China trade war. Take note: this business is involved in the export and import of freight services for the shipment of goods. It is also the biggest earnings contributor, making up 64% of revenue in FY18. We also expect lower losses from an associate, as its second quarter (2Q) of FY19 loss narrowed to RM200,000 (1QFY19: a loss of RM570,000).

Third-party logistics and warehousing is the second-largest revenue contributor at 11%, followed by air freight (10%). When combined with sea freight, these three segments made up 85% of FY18’s total revenue. Freight Management’s 3PLW division handles the warehousing and logistic operations for its clients. For air freight, it manages inbound and outbound shipments, mainly through the Kuala Lumpur International Airport.

We are expecting a dividend of RM0.033 for FY19 forecasts, assuming a payout ratio of 45%, close to FY18’s 47%. This translates into an attractive yield of 5.4%, the highest among the logistic firms under our coverage. We expect little risk to our assumption, as Freight Management’s net gearing is low at 15%. It benefits from a strong cash flow generation as well.

We have assumed a higher share base of 279.2 million after the one-for-two bonus issue and updated our discounted cash flow to start from FY19F. The new TP values Freight Management at 9.7 times FY19F price-earnings (P/E), implying 0.4 standard deviation below the mean forward P/E. Key downside risks are weaker volumes in the sea freight segment and higher losses from its associate. — RHB Research Institute, March 12.

The content is a snapshot from Publisher. Refer to the original content for accurate info. Contact us for any changes.






Related Stocks

FM 0.600

Comments

Login to comment.