• Maintain BUY and MYR1.20 TP, 107% upside. 3QFY22 (Jun) results came in above expectations with the freight forwarding segment (particularly sea freight) demonstrating steady volume growth despite the ongoing supply chain disruptions. Looking ahead, the elevated freight rates will remain in favour of FM Global Logistics, and we expect throughput volumes to stay resilient, supported by a trade flow recovery – further complemented by FM’s customer acquisition efforts. This report marks the transfer of coverage to Raja Nur Aqilah.

• Above expectations. 9MFY22 core profit of MYR34m came in above expectations, at 85% and 90% of our and Street’s full-year estimates. A second interim dividend of 1 sen was also declared. YoY, 3QFY22 core profit increased by 95.6%, attributable to the robust growth demonstrated by the freight forwarding segment – particularly for sea and air freight, which more than offset the slight drop in contributions from the 3PL, warehousing, and distribution segments. The freight forwarding operations saw higher GP contribution on higher throughput volumes (+2.4% YoY) and sell-on rates amid the surge in global freight rates. QoQ, 3QFY22 core profit increased by 19.1% – this was also driven by strong volume growth in the freight forwarding operations, which offset the higher opex for the quarter.

• FM expects to maintain its growth momentum and remains optimistic on throughput volumes moving forward despite some headwinds on the geopolitical front and disruptions arising from China’s lockdown. Although freight rates have peaked, we believe the stabilised rates are unlikely to return to pre-pandemic levels anytime soon. We think growth will be supported by a rebound in the post-pandemic global trade flow upon further reopening of the economy and the group’s ongoing customer acquisition efforts. For the 3PL and warehousing segments, FM will continue to enhance its client portfolio with customers with quicker inventory turnovers and credit terms. As re-rating catalysts, we look forward to the lifting of China’s lockdown – which will boost trade flows for FM – and prospects of additional warehousing space to capture the high demand and underpin positive earnings growth for its currently underperforming 3PL wing.

• Our FY22F-24F earnings are revised upwards by 4-5%, imputing slightly higher volume growth assumptions for the sea and air freight segments amid expectations of robust volume throughput. We roll forward our base year to FY23 and tweak our cost of equity assumption to reflect a higher risk free rate. Our DCF-derived TP of MYR1.20 is unchanged and includes a 6% ESG premium, as our 3.3 ESG score is above the 3.0 country median. We continue to like FM for its resilient business profile, undemanding valuations (c.20% discount to KLTRAN forward P/E of 19x), and consistent dividend track record. Key downside risks include a weakening in global trade flows and higher-than-expected opex.

Source: RHB Research - 27 May 2022