PP 7767/09/2010(025354)

1 March 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
1 March 2010
MARKET DATELINE

Freight Management Share Price

Fair Value
:
:
RM0.685
RM1.40
1HFY06/10 Net Profit Rises 20% YoY Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (FREIGHT; Code: 7210) Bloomberg: FMH MK

Net Net
FYE Revenue Profit EPS Growth PER C. EPS * P/NTA Gearing ROE GDY
Jun (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009a 229.4 13.6 11.1 11.5 6.1 - 1.0 0.03 16.2 6.6
2010f 243.6 15.8 13.0 16.5 5.3 - 0.9 Cash 16.8 6.6
2011f 265.9 18.4 15.1 16.4 4.5 - 0.8 Cash 17.4 8.0
2012f 284.7 19.1 15.7 3.7 4.4 - 0.7 Cash 16.1 8.0
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ Above expectation. 1HFY06/10 net profit of RM8.1m came in above our Above -
expectation, at 56.7% of our full-year forecast. We believe the variance In Line -
against our forecast came largely from the lower-than-expected effective Below -
tax rate of 17.6% vis-à-vis 25% we projected.
Issued Capital (m shares) 121.7
♦ YoY. Despite revenue falling by 1.2% to RM124.4m, 1HFY06/10 net profit Market Cap(RMm) 83.4
rose 19.8% to RM8.1m from RM6.7m a year ago mainly due to: Daily Trading Vol (m shs) 0.1
1. The introduction of three new services (i.e. land freight, haulage and 52wk Price Range (RM) 0.55 – 0.895
project cargo) since 2QFY06/09; Major Shareholders: (%)
2. Margin expansion at airfreight, seafreight, and tug & barge divisions; Chew Chong Keat 27.9
Singapore Enterprise 20.0
3. Lower finance costs; and
Yang Heng Lam 18.3
4. Lower tax expense.
♦ QoQ. 2QFY06/10 net profit increased by 9.6% to RM4.2m from RM3.8m in FYE Jun FY10 FY11 FY12
EPS Revision (%) +11.1 +10.8 +10.7
1QFY06/10 as margin erosion arising from higher freight costs (FM paid
Var to Cons (%) - - -
more for container space on rising freight rates on tighter availability of
ships on reduced global shipping capacity as more ships were laid up) was PE Band Chart
more than offset by higher freight volumes.
PER = 9x
♦ Risks. The risks include: (1) The entrance of new players into segments PER = 7x
PER = 5x
where FM commands significant market shares, hence affecting FM’s pricing
power and profitability; and (2) A slower-than-expected recovery in the
global economy.
♦ Forecasts. We are raising our FY06/10-12 net profit forecasts by 10.7-
11.1% to RM15.8m, RM18.4m and RM19.1m respectively, largely to reflect
lower effective rate assumptions in FY06/10-12. Relative Performance To FBM KLCI

♦ Investment case. Correspondingly, indicative fair value is raised by 10.2%

Freight Management
from RM1.27 to RM1.40 based on 10x revised CY2010 EPS of 14.0 sen, in
line with our benchmark 1-year forward target PER for the transport and
logistics sector. We continue to like FM for: (1) Its core business, i.e. the FBM KLCI

provision of less-than-container-load (LCL) freight service that is niche and

highly profitable; (2) Its dominance in the sector with an estimated market
share of 30-35% in the LCL sea freight segment in Malaysia; and (3) The
above-trend growth of its LCL business vis-à-vis Malaysia’s already resilient
international trade activities. Earnings growth apart, we also see FM as a
dividend yield play, underpinned by its decent dividend yield of 6-7% per Chye Wen Fei
(603) 92802172
annum. Maintain Outperform.
chye.wen.fei@rhb.com.my
Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY Cumulative)

FYE Jun 2009 2010 % YoY Observations/ Comments
(RMm) 6M 6M Chg
Revenue 125.9 124.4 -1.2 Due mainly to: (1) Lower freight rates that affected contribution from the
seafreight division; and (2) Lower rail freight revenue that more than offset
higher revenue contribution at the tug & barge and haulage divisions.
Operating profit 10.2 11.5 13.5 Mainly boosted by: (1) Contributions from new businesses; (2) Higher
margins at the air freight and tug & barge divisions.
Finance costs -0.8 -0.8 -10.6 Net debt declined to RM6.1m from RM11.0m a year ago.
Associates 0.0 0.0 NM
Pretax profit 9.3 10.8 15.8 Boosted further by lower finance costs.
Tax expense -2.2 -1.9 -13.7
Minority interest -0.4 -0.8 >100 Reflecting better earnings at 51%-owned tug & barge business.
Net profit 6.7 8.1 19.8 Boosted further by lower tax expense.
EPS (sen) 5.5 6.6 19.8

Operating margin (%) 8.1 9.3 1.2 pts

Pretax margin (%) 7.4 8.7 1.3 pts
Net profit margin (%) 5.3 6.5 1.1 pts Boosted further by a lower effective tax rate.
Effective tax rate (%) 23.7 17.6 -6.0 pts

Table 3: Earnings Review (QoQ)

FYE Jun 2010 2010 % QoQ Observations/ Comments
(RMm) 1Q 2Q Chg
Revenue 58.8 65.6 11.6 Boosted higher freight volumes (except for rail freight).
Operating profit 5.8 5.8 0.5 Partly offset by margin erosion arising from higher freight costs (FM paid
more for container space on rising freight rates on tighter availability of ships
on reduced global shipping capacity as more ships were laid up).
Finance costs -0.4 -0.4 -1.8 Due to lower cost of financing.
Associates 0.0 0.0 NM
Pretax profit 5.4 5.4 1.1 Filtered down from operating profit.
Tax expense -1.1 -0.8 -26.2
Minority interest -0.4 -0.4 -5.9
Net profit 3.8 4.2 9.6 Helped further by a lower tax expense.
EPS (sen) 3.2 3.5 9.6

Operating margin (%) 9.8 8.8 -1.0 pt

Pretax margin (%) 9.2 8.3 -0.9 pt
Net profit margin (%) 6.5 6.4 -0.1 pt
Effective tax rate (%) 20.4 14.9 -5.5 pts

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Jun (RMm) FY09a FY10f FY11f FY12f FYE Jun FY10f FY11f FY12f

Revenue 229.4 243.6 265.9 284.7 TEUs

Growth (%) 3.3 6.2 9.2 7.1 Sea Freight 56,055 58,858 61,801
Rail Freight 7,872 6,298 5,038
Operating profit 20.9 22.5 25.5 26.2 Air Freight (kgs) 5,078 5,585 5,585
Operating margin (%) 9.1 9.3 9.6 9.2 Land Freight 578 867 1,301

Finance costs -1.6 -1.2 -1.0 -1.0

Associate 0.0 0.1 0.1 0.1
Pretax profit 19.3 21.4 24.6 25.3
Pretax margin 8.4 8.8 9.2 8.9

Tax expenses -4.3 -3.9 -4.4 -4.6

Minority interests -1.5 -1.8 -1.8 -1.7
Net profit 13.6 15.8 18.4 19.1
Net profit margin (%) 5.9 6.5 6.9 6.7
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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