FM: Earnings Beat Expectations on Cost Efficiencies, Target Price Raised

First-quarter net profit for the period ending June 2026 surged by 20.0% year-on-year to RM8.7 million, significantly exceeding expectations. This strong performance occurred despite a 7.3% decline in revenue, which stood at RM235.2 million for the quarter. The robust earnings were primarily attributed to effective cost management strategies, a favorable product mix, and a reduced effective tax rate, which collectively boosted the profit after tax (PAT) margin from 2.9% to 3.7% compared to the prior year. The results align with the investment bank’s full-year forecast, representing 27.0% of the projected earnings.

Performance Review

The decline in revenue was largely driven by a weaker performance in the core sea freight segment, which accounts for approximately 60% of total revenue. This segment experienced a 9.4% year-on-year contraction, stemming from lower freight rates and a 3.0% decrease in volume, totaling 30,862 TEU. Land Freight, 3PL (Warehousing and Distribution), and Supporting Services segments also posted softer results due to reduced overall volume and business activities. However, the weaknesses across these segments were partially offset by a stronger showing in the Air Freight segment.

Industry Dynamics and Future Outlook

The short-term outlook for the global freight market remains mixed. While global trade has demonstrated resilience, partly due to front-loading activities and lower average effective US tariff rates, this effect is anticipated to fade in 2026. Factors such as geopolitical tensions, rising trade barriers, and policy uncertainty are expected to contribute to slower trade growth. Furthermore, a record orderbook for new vessels, coupled with existing overcapacity, suggests that freight rates will continue their downward trend through the remainder of 2025 and into 2026.

Despite these near-term headwinds, the global freight market is projected for sustainable long-term growth, with an estimated Compound Annual Growth Rate (CAGR) of 5.5%. This growth will be fueled by expanding international trade and e-commerce across Asian and Global South countries. Technological advancements, including AI, IoT, and blockchain, alongside a growing emphasis on sustainability and resilient logistics solutions, are expected to provide further support.

Investment Recommendation

Given the firm’s robust first-quarter performance driven by operational efficiencies, TA SECURITIES maintains its BUY recommendation for the company. The target price has been raised to RM0.25, representing a 25.0% upside from the last traded price of RM0.20. This revised target price reflects the company’s ability to navigate a challenging market environment through strategic cost control and a positive long-term industry outlook.