Favourable prospects for airlines and airport operators — AmInvestment

Favourable prospects for airlines and airport operators — AmInvestment
-A +A

KUALA LUMPUR (Dec 27): AmInvestment Bank Bhd Research has maintained its "Neutral" call on the transportation and logistics sector, and said prospects are favourable for airlines and airport operators, backed by tourist arrivals projected to reach 30 million in 2020 by Tourism Malaysia in conjunction with Visit Malaysia 2020.

In a sector note today, the research house said the 30 million tourist target in 2020 is achievable as tourist arrivals surged during the Visit Malaysia Year, according to past numbers recorded.

"Also helping are a weak ringgit and 'tourist diversion' to Asean destinations (Malaysia included) from Hong Kong amidst unabated political unrest and protests," it added.

According to AmInvestment, the positive outlook for Malaysia's tourist arrivals will be a tailwind to AirAsia Group Bhd's key strategy to aggressively grow its top line to mitigate the higher cost structure arising from the sale and leaseback of its aircraft and the high start-up costs of its digital ventures.

The local e-commerce sector is expected to expand rapidly with Fitch Solutions projecting a compound annual growth rate (CAGR) of 14% in 2018-2022 while the government is even more optimistic with its 20% projection.

"However, the sector is weighed down by an overcrowding of participants (116 as at November 2019), resulting in cut-throat competition and severe squeeze in margins of the service providers," AmInvestment said.

Meanwhile, the research house said seaport operators are beneficiaries of the trade diversion from the US-China trade war.

It forecasts a container volume growth of 4% to 5% for seaport operators in Malaysia, which is in line with the projected CAGR of 4.5% in 2019 to 2024 for international containerised trade by the United Nations Conference on Trade and Development.

"The outlook for the port sector in the region (Malaysia included) is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports," it said.

An added competitive advantage of seaports in Malaysia is its low port charges, bolstered further by a week ringgit. The research house stated that global shipping lines will have to step up their cost-cutting initiatives on the back of slowing business amidst a global economic slowdown.

"Not helping either is the much more stringent IMO 2020 sulphur cap (sulphur content of fuel used) that will come into effect from Jan 1, 2020, exerting further upward pressure on operating cost of shipping lines," the research house added.

The growth in local seaports will be underpinned by expansion plans, such as a new liquid bulk jetty and eight new container terminals (CT10 to CT17), which will double its handling capacity from 14 million to 28 million twenty foot equivalent units (TEUs) by 2040.

It will also be underpinned by the new triple-E cranes and development of autonomous driving terminal tractors (a joint venture with Terberg Tractors Malaysia Sdn Bhd) at Pelabuhan Tanjung Pelepas.

AmInvestment named Westports Holdings Bhd (Buy, fair value [FV]: RM4.81) and MMC Corp Bhd (Buy, FV: RM1.58) as its top picks.