KUALA LUMPUR (Oct 22): AmInvestment Bank Bhd has upgraded its call for the transportation and logistics sector to “neutral", from "underweight", and said it believes the seaport segment is starting to see green shoots, underpinned by the reopening of economies globally.
In a sector update today, the research house also said the recovery of the seaport segment is supported by the Shanghai Containerized Freight Index, a barometer to gauge the health of global trade which had charted a record high, showing strong demand for container capacity.
“We are keeping our view that the seaport sector locally and in the region has seen the worst, and is on its recovery path as global economies reopen.
"We believe the pandemic as well as increased trade tensions among major economies in the world prior to the [Covid-19] pandemic will reshape the global supply chain, resulting in diversion of investments away from China to the Southeast Asian region, boosting container throughput in the region,” AmInvestment noted.
The report also quoted the United Nations Conference on Trade and Development (UNCTAD) as projecting the world's output growth to be more resilient in developing countries compared to developed countries.
UNCTAD forecasted that the Asian region will have an output growth of 6.3% year-on-year (y-o-y) in financial year 2021 (FY21) versus a 4.1% y-o-y growth globally, followed by a marginal 0.9% y-o-y contraction in Asia versus 4.3% y-o-y globally in its FY20 projections.
“We believe this is mainly because the developing countries are home to many suppliers in the fast-growing sectors, such as communications equipment, semiconductors, textiles and apparel, which will contribute positively towards growth in container trade volume, and thus container throughput volume at ports in the region.
“As of the first half of the third quarter (3Q), some of these sectors already registered a positive growth y-o-y, for instance communications equipment (+8%) and textiles and apparel (+3%),” AmInvestment added.
Meanwhile, it said the logistics segment continued to benefit from a surge in e-commerce demand fuelled by the pandemic, while the crowded sector locally continued to be weighed down by cut-throat competition, resulting in a severe squeeze in margins.
“We believe logistics players will continue to focus on improving their service level and operational efficiencies to gain market share and improve margins, which is critical for the players to survive in the overcrowded space and eventually benefit from the e-commerce boom.
AmInvestment said its top picks within the sector are MMC Corp Bhd ("buy"; fair value [FV]: RM1.56) and Westports Holdings Bhd ("buy"; FV: RM4.45) as it anticipates a recovery in container throughput over the next six to 12 months.
As for the air travel segment, the research house said it is still in survival mode, suffering from a cash crunch and cross-border travelling restrictions.
It projected that domestic air travel demand will recover back to pre-Covid levels by 2022, while expecting international air travel demand to only recover fully by 2024.
Having said that, it believes domestic and regional air travel could both bounce back strongly if the pandemic is effectively contained either by way of contact tracing or the availability of a vaccine.
To ride on the recovery of the air travel segment, the research house prefers airport operator Malaysia Airports Holdings Bhd (MAHB) ("buy; FV: RM6.64) over budget airline AirAsia Group Bhd ("sell"; FV: 44 sen), stating that it is a foregone conclusion that the latter will have to raise a significant amount of fresh capital to patch up its damaged balance sheet, which will be highly dilutive to its existing shareholders.