RHB Research keeps Neutral stance on Freight Management

  • Analyst Reports
  • Thursday, 22 Aug 2019

KUALA LUMPUR: RHB Research Institute is retaining its neutral outlook on Freight Management with a new discounted cashflow-derived TP of 60 sen from 63 sen.

It said on Thursday the FY19 earnings were below estimates, on losses from its tug & barge associate as well as distribution businesses. The stock lacks catalysts as FY20F earnings growth will be capped by ongoing losses from the tug & barge business.

“Its valuation is undemanding, however, at 10 times forward P/E vs the peer range of 14times to 56 times and average of 25 times, ” it said.

RHB Research said Freight Management’s FY19 core net profit of RM13.6mil was below expectations, comprising only 80% of its full-year estimate.

The negative deviation came from worse-than-expected losses amounting to RM5mil from an associate in tug & barge services and the impairment of its assets. Its distribution business also recorded a loss of RM2.3mil.

“Earnings plunged 31% on-year to RM13.6mil. Although FY19 revenue grew by 7% YoY to RM545mil, net profit was affected by losses from the tug & barge associate, as well as losses from distribution.

“Having said that, management plans to resolve the issue by selling the vessels at this associate by end-FY20. This should limit the loss in the long run.

“We have assumed higher losses to be booked by the tug & barge associate and distribution business. As a result, we cut FY20F-22F earnings by 14%, 13% and 13% to RM16mil, RM17mil and RM18mil, ” it said.

RHB Research said the balance sheet remains healthy with net gearing of 0.11 times. As of end-June, Freight Management had net debt of RM30mil, with equity of RM289mil.

This translates into a net gearing ratio of 0.11 times (flat against last year’s 0.10 times).

In line with its now lower earnings estimates, the TP also drops to 60 sen from 63 sen. FY20F earnings growth should be capped by ongoing losses at the tug & barge associate.

However, downside is also limited as its valuation is undemanding, with a forward P/E of around 10 times vs its peer range of 14-56 times and average of 25 times.

Key upside/downside risks: A stronger-/weaker-than-expected performance in the freight divisions (sea, air, and land), as well as the third-party logistics (3PL) and warehousing & distribution segments.

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