Friday, March 29, 2013

One should not be afraid of Freight Management

This is one company which slips right through before my eyes. Why? I have never had the positive mindset for logistics services business. In my mind, I have always thought that this business is in a very competitive landscape. I have seen some entrepreneurs with the call cards registered in their phones, after a number of years of experience, came and venture out themselves - they are able to survive with very few people working for them. With the contacts and some licenses, they can basically operate.

On the other part of the landscape, companies like Freight Management are up against the very large freight forwarders in this world like Kuehne and Nagel, Expeditors, CEVA etc. This is a borderless business. While there are licences involved in their ability to operate, it was most of the time never a problem. Hence, you are seeing in Malaysia as well as in countries that Freight Management operates in the very large and smaller players are there as well.

However, despite all the fear how can we fault the consistent growth that Freight Management has been able to register over the last 10 years as below.

5 years Financial Highlight 2003 to 2007

5 years Financial Highlight 2008 to 2012
If you look at the track record, the revenue and Net profit were registering growth every year without fail. That is almost impossible to achieve but yet is happening. How can this happen? I guess as in most people whom are not very aware of the company, this is partly the reason. You can almost missed the company if you are looking for trading volume. However, the unfettered focus by the management to grow the business and profitability, after that let everything else runs its own course - this in every investments is almost more important - no doubt. The thing that probably will differentiate my earlier failed investment of very good companies is that Freight Management does pay consistent dividend and it is mainly a services company. Hence, cashflow is more consistent - and from there it will continue to be able to pay good consistent dividends.

On the industry outlook, this region's shipping volume grows and Malaysia continues to be a very important regional and global logistics hub. It seems that despite the continuous tough competition, Freight Management is not losing market share - it in fact seems like gaining market share.

Having looked further, I like Freight Management for many other reasons. Compared to Tasco and Century Logistics, this company is slightly lighter in terms of Fixed Assets (things like trailers, prime movers, warehouses etc). This shows that as in its namesake, its primary focus is freight forwarding (around 70%). The others like warehousing, haulage, tug and barge etc. are more complementary to the group than being the main contributor.

To be able to do that well - it is not easy but it shows where the company's strength is. Consistent volume from its main customers, strong customer service and deliveries. That is hard to achieve, but if you do them well, hardly a reason for its customers to leave the company. Hence, I can see the strength of this company is strong services as well as account management.

Freight Management is trading at around RM190 million market capitalisation, hence based on last year's financial performance, its current price is below 10x PE. And if it is able to grow at such consistencies and pace, why should anyone be worried of what it is trading against its peers and industry? My question is, are you able to find another business at less than 10x PE with a strong assurance from strong previous track record? Maybe some, but not too often.

Judging from what I can project into the future, there is no reason why Freight Management cannot continue to be strong. It has gone through tougher times of the 2008 and came out strong, hence this is a good candidate for one's portfolio.

Another thing I note having flipped through the company's many years of Annual Reports - see below. The directors are paying themselves only the basics. Others come from dividends from their shareholdings as well as capital appreciation. That is something which we should applaud and respect. Again, it is hardly seen.


eKimkee said...

F&S expects the industry to expand at a compounded annual growth rate of 11.6 % to reach a market size of RM203.71 billion in 2016. This is a good fundamental support.

Nonetheless, the recent 2 quarters Before Tax Profits are reduced and margin is eroding. It reflects the stiff competition out there.

Hope it can expands it's market faster in ASEAN to generate more income as an alternative to profit margin erosion.

eKimkee said...
This comment has been removed by the author.
veronica viz said...
This comment has been removed by the author.