Friday 29 Mar 2024
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TRADING in logistics group Freight Management Holdings Bhd gained momentum after it announced its RM1.6 million purchase of a 20% stake in Hubwire Sdn Bhd on July 6.

Hubwire, which Freight Management (fundamental: 2; valuation: 1.80) says specialises in multi-channel information technology, retail management, IT solutions and e-commerce in Malaysia and Asia-Pacific, would boost the latter’s proposition in e-commerce logistics services. The expansion should complement the group, which deals in sea, air and land freight, as well as warehousing, customs brokerage and haulage.

Closing at RM1.55 last Wednesday, the stock still has an upside potential of some 20% based on RHB Research Institute’s “buy” recommendation and target price of RM1.87.

However, the upside is limited if one were to believe BIMB Securities and Mercury Securities’ valuation of RM1.60 and RM1.43 respectively, according to Bloomberg data.

Those who have the stomach for risk may also consider the company’s warrant, Freight-WA, which has a strike price of 97 sen and conversion ratio of one for one. Closing at

52 sen on July 7, the thinly traded warrants were at a 3.87% discount to the underlying share. Note though that the American-style call warrants are only expiring in January 2017.

Assuming zero premium to the underlying share, Freight-WA should theoretically be worth 73% more, at 90 sen, if Freight Management  reached RHB’s RM1.87 target price.

Earnings-wise, Freight Management posted a net profit of RM4.32 million in the third quarter ended March 31, 2015, down 13.7% year on year, even as revenue rose 5.2% to RM101.68 million.

The stock is trading at about 12 times historical earnings. In contrast, GD Express Carrier Bhd is valued at 61 times historical earnings and Tiong Nam Logistics Holdings Bhd at 6.6 times. Note that the market capitalisation of GDex and Tiong Nam, at RM1.68 billion and RM488 million respectively, is substantially larger than  Freight Management’s RM268.1 million.freight-wa_cap52_1075_theedgemarkets

Freight Management’s net gearing is relatively low at 12% against Tiong Nam’s 89.45%, for example. The company’s lower y-o-y profit was not due to poorer operational performance per se but to increased borrowing cost for a new warehouse and the acquisition of a tugboat, which drove up depreciation cost.

In fact, the group’s top earnings contributor, sea freight, saw a 17% y-o-y increase in profit to RM62.4 million in 3Q. This was partially offset by a 20% drop in profit to RM10.1 million in its warehousing division.

Investors interested in the warrants should note that the company paid dividends twice a year in the past three years. On June 26, the stock traded excluding entitlement to its 1.5 sen per share interim dividend, payable on July 28.

 

This article first appeared in Capital, The Edge Malaysia Weekly, on July 13 - 19, 2015.

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