Transportation and logistics sector
Maintain neutral: We are “neutral” on the transportation sector for the next 12 months. Airlines and airport operators’ prospects are favourable, backed by tourist arrivals projected to reach 30 million in 2020 or +12% year-on-year versus Tourism Malaysia’s annualised nine months of 2019 of 26.8 million in conjunction with the Visit Malaysia Year 2020.
For seaport operators in Malaysia, our forecast container volume growth of 4% to 5% is in line with a projected compound annual growth rate of 4.5% in 2019 to 2024 for international containerised trade by the United Nations Conference on Trade and Development.
Also helping are a weak ringgit and a “tourist diversion” to Asean destinations, including Malaysia, from Hong Kong amid unabated political unrest and protests. The outlook for the port sector in the region is resilient, underpinned by global trade and investments in the manufacturing sector generating a tremendous inbound (feedstock) and outbound (finished product) throughput for ports.
An added competitive advantage of seaports in Malaysia are low port charges, bolstered by a weak ringgit. Not helping is a more stringent International Maritime Organization 2020 sulphur cap effective tomorrow.
Local seaports’ growth will be underpinned by expansion plans — a new liquid bulk jetty and eight new container terminals, CT10 to CT17, doubling the handling capacity from 14 million to 28 million twenty-foot equivalent units by 2040; new triple-E cranes and the development of autonomous driving terminal tractors — a joint venture with Terberg Tractors Malaysia at Pelabuhan Tanjung Pelepas.
While online shopping has created huge opportunities for parcel delivery service providers, the sector is weighed down by an overcrowding of participants — 116 as at November 2019.
Our stance on the transportation sector may be upgraded to “overweight” if the volume performance, such as passenger traffic, cargo throughput and mail or parcel volume, beats expectations; a surprise in yields on the upside on reduced competition; and fuel costs — jet fuel for airlines and diesel for seaport operators — come down on weaker crude oil prices.
Our top pick for the sector is Westports Holdings Bhd with a “buy” call and a fair value (FV) of RM4.81, and MMC Corp Bhd (buy; FV: RM1.58). Also helping is a resilient outlook for the region’s port sector, underpinned by investments in the manufacturing sector generating a tremendous inbound and outbound throughput, coupled with a weak currency and cheaper port charges. — AmInvestment Bank, Dec 27