Swift Haulage expands into Singapore
KUCHING: Swift Haulage Berhad (Swift) has entered into a binding offer (BO) with DLT Enterprise Pte Ltd (DLT) to acquire the entire equity interest in Watt Wah Petroleum Haulage Pte Ltd (Watt Wah) which is 100 per cent-owned by the latter.
The target company is primarily involved in chartering, forwarding, and transporting petroleum products.
The entire equity interest in the target company is valued at SG$1.6 million (RM5.2 million) and Swift intends to fully satisfy it by way of cash payment.
Additionally, subject to the acquisition agreement, Swift will be required to repay the shareholder’s loan which amounted to S$8.5 million (RM27.7 million) as of June 30, 2022) by refinancing it within two weeks of the completion date.
“The cash consideration would effectively reduce Swift’s cash balance which stood at RM34.6 million as at end-1QFY22,” explained MIDF Amanah Investment Bank Bhd (MIDF Research) in its notes.
“Its earnings would also need to be adjusted to factor in higher borrowing costs due to the loan refinancing in which the amount is subject to change following further repayment until the completion date.
“The net asset value of the target company stood at S$1.5 million (RM5 million) as of June 30, 2022. To note, Swift’s gearing ratio is at 0.98 times as at end1QFY22. We make no changes to our earnings estimate at this juncture pending the acceptance of the BO by the seller.
“We are positive on the proposed acquisition as it supports Swift’s longer-term plan to increase its footprint in the region as currently it only has operations in Malaysia and Thailand,” it said.
Historically, the group has been part of several successful merger and acquisitions including MISC Integrated Logistics and Tanjong Express.
It was mentioned previously by the management that in increasing its market share, growing inorganically benefits them as it would be able to retain the truck drivers amid the industry-wide shortage.
Based on Watt Wah’s indicative net profit of S$0.4 million, Kenanga Investment Bank Bhd (Kenanga Research) said that the acquisition price earnings ratio works out to be 25 times which it believed is not excessive given its ready client base of oil majors including Shell and Caltex.
“We are mindful of Watt Wah potentially having a negative net asset value, based on the disclosure that its net asset value is S$1.5 million, excluding shareholders loan of S$8.5 million.
The acquisition will have minimal impact on SWIFT’s earnings as additional earnings from Watt Wah will be offset by the borrowing cost to fund the acquisition. Post the acquisition, SWIFT’s net gearing will rise from 0.83 times to 0.88 times which is still manageable.
Rationale of the acquisition. SWIFT highlighted that the proposed acquisition is a strategic move to expand their presence in Singapore.
This acquisition is in-line with its strict criteria of assessing potential M&As with Watt Wah seen as a perfect fit for the group complementing its inland distribution, cross border, and freight forwarding segments.