FREIGHT MANAGEMENT HOLDINGS BHD (FMH) has set an earnings growth target of 10% for its financial year ending June 30, 2015 (FY2015), says group managing director Chew Chong Keat.
In FY2014, FMH’s net profit grew 6.4% to RM24 million and revenue rose 10.4% to RM403 million. Since its listing in 2005, the regional multimodal freight and logistics company has posted steady revenue and earnings growth.
“Our internal target for growth this financial year is 10%,” Chew tells The Edge.
He says the growth in FY2015 for FMH will come mainly from its sea freight segment (which accounted for 55.7% of its revenue in FY2014) and the new projects started last year that included building and expanding warehousing facilities for the storage of food and pharmaceuticals.
Apart from sea freight and warehousing services, the company also provides air and rail freight services, tug and barge services, transport and custom brokerage services, and third-party logistics.
Another catalyst could be getting jobs in the oil and gas sector through FMH’s joint venture with Scomi Energy Services Bhd.
“We will be tendering for contracts in early 2015. We are waiting for jobs and if we get contracts, the impact on the company will be seen in the second half of FY2015,” says Chew.
In June 2013, FMH entered into a 50:50 joint venture with Scomi Energy to acquire and operate marine vessels for the provision of services to the oil and gas industry in Southeast Asia.
Chew sees the company as well-positioned to benefit from the rapid growth of Asean trade and investments.
“The logistics sector is still a growing business. Inter-Asean trade is rising along rapid population growth, and we have already set foot on many countries in Southeast Asia,” says Chew, whose family holds a 30% stake in FMH.
He notes that Asean is one of the fastest growing regions in the world. It recorded a combined gross domestic product of US$2.4 trillion (RM8.08 trillion) in 2013, and the figure is expected to reach US$3 trillion by 2017. Asean’s total population is forecast to rise to 650 million by 2020 from the current 620 million.
However, Chew expects the company’s financial performance in 1QFY2015 to be “a bit soft”.
“But for the full year of FY2015, I am optimistic of maintaining a high single-digit growth because of our multiple streams of logistic services, better control of services and rise in efficiency.”
FMH was recently spared an intended move by Suruhanjaya Pengangkutan Awam Darat (SPAD) to revoke its licence for haulage services, which contributes 8% to its revenue. The Sept 24 notice was served following a fatal accident involving one of the company’s trucks.
“But after auditing and looking at our work processes, SPAD realised that we follow a set of procedures with a high standard of safety imposed by our multinational corporation (MNC) clients. In fact, we came out of this quite well.”
Looking ahead, Chew, who has been in the industry for 26 years, says the company will continue to focus on its logistics business in South East Asia. According to him, the company recently secured an account to manage delivery and customs clearance for an MNC in the Philippines.
He is also considering venturing into other businesses that could generate income for the company, and trade financing is one of them.
After setting up its offices in India and the Philippines last year, FMH aims to establish a foothold in Myanmar, Laos and Cambodia. It is happy working with its partners in matured and competitive markets of Taiwan, Korea, Japan and China. Chew does not rule out the possibility of mergers and acquisitions (M&A) going forward.
“There are 22,000 logistics-related players in the market. The industry needs consolidation. Although integration post M&A is challenging, we are keeping an open mind on M&A. But at 53, I am not about to give up working in this business.”
Chew says although FMH does not have a dividend policy, the company gives out 30% or more of its net profit to shareholders every year. In FY2014, the payout was 35%.
On FMH’s share price, Chew opines that “it is very undervalued” compared with the price earnings average of 12.8 times among its local and foreign peers. According to its corporate presentation report in October, the company had historical price earnings of 11.8 times.
FMH’s shares closed at RM1.68 last Thursday, giving it a market capitalisation of RM287 million. As at end-June, its net asset value per share was 99 sen.
On Sept 12, RHB Research gave the company a “neutral” rating and a full-value price of RM1.76 per share based on the local industry average of 11.3 times FY2015 price earnings forecast.
“Because Freight Management is a good and undervalued company, many foreign funds took positions in our company. US, Japan and UK institutional funds hold more than 10% of our shares,” says Chew.
This article first appeared in The Edge Malaysia Weekly, on November 24 - 30, 2014.