KUALA LUMPUR: A delay in the recovery of trade activity is expected to weigh on FM Global Logistics Bhd's earnings in the first half of its 2024 financial year.
According to RHB Research, its economics unit is expecting a delayed recovery in Malaysia's trade performance with the possibility of year-on-year exports contraction extending into the fourth quarter of 2023.
Consequently, the research firm said FM Global Logistics' earnings recovery should resume towards the end of the year in tandem with a recovery in the country's and global trade, primarily supported by the US and Asean economies.
"Our 1HFY24 earnings estimates now stand at MYR19.8m (-6% y-o-y), as China’s economy is expected to remain weak for the remainder of 2H23.
"Nevertheless, we anticipate a gradual improvement towards end-4Q23, supported by the strength of the US economy and recovery in regional economies (Asean)," it said in a note.
By business segment, the current market dynamics are expected to continue to weigh on FM Global Logistics' international business although domestic businesses such as third-party logistics, warehousing and supporting services should continue to bolster the group's earnings, said RHB.
The research firm lowered its FY24 forecast earnings by 4.6%, which lowers its target price to 68 sen from 79 sen previously.
"We maintain our 'buy' call as FM’s current valuation of 8.3x is still attractive compared to its regional peers, while also offering a decent dividend yield of c.6%," it added.
RHB said key risks include slower-than-expected volumes within the sea freight and air freight divisions, higher-than-expected opex, and slowdown in global trade activities.
