This article first appeared in The Edge Financial Daily on October 16, 2019

Transport and logistics sector
Maintain neutral: Port Klang is getting busier and may reach full capacity in five years. We believe the government’s plan to increase cargo-handling capacity at Port Klang bodes well for Westports Holdings Bhd. Westports is finalising detailed plans for its massive expansion project “Westports 2” that should nearly double its capacity to 27 million twenty-foot equivalent units (TEUs) from 14 million TEUs currently.

The management targets to obtain the government’s approvals and concessions by mid-2020. In view of Westports 2’s relatively lower capital expenditure and shorter development period, we expect the project to receive the government’s green light ahead of the Carey Island project, if it’s deemed feasible.

In view of the Visit Malaysia Year 2020 (VMY2020) campaign and a weak ringgit relative to the US dollar and those of some Asean peers, the government’s target to attract 30 million tourist arrivals in 2020 looks achievable. The higher tourist arrivals should support airports and airlines’ revenues, but this has been largely priced in (VMY2020 was announced in 2017).

We are raising our financial year 2020 (FY20) and FY21 earnings forecasts for AirAsia Group Bhd by 2% to 3% and expect lower FY20 losses from AirAsia X Bhd after incorporating a lower oil price assumption of US$63 per barrel from US$68 per barrel, partly offset by a weaker ringgit forecast of RM4.20 per US dollar.

For exposure, we like Westports for its strategically located assets, strong management team and good earnings growth trajectory. However, these have been largely priced in. Also, avoid logistic companies due to stiff competition and rising costs. — Affin Hwang Capital, Oct 15