Transportation Sector is upgraded to OVERWEIGHT from Neutral, underpinned by positive macroeconomic and sectorial indicators, according to RHB Investment Bank’s Sector Update.
The positive indicators include emerging signs of recovery in China, a further pick-up in tourism activities, and stronger momentum in trade activities.
“Of the five companies under our coverage that reported results, three came in line while two fell below estimates,” it said today (Dec 6).
According to the investment house, Westports Holdings Bhd’ 3Q23 core earnings were within its expectations, remaining relatively stable quarter-on-quarter (QoQ) but reflecting a 30% year-on-year (YoY) improvement.
Additionally, Malaysia Airports Holdings Bhd (MAHB) is regaining momentum in both aeronautical and non-aeronautical segments.
“The stronger YoY performance was not a surprise to us, given the promising growth in both passenger traffic and recovery rates.
“However, earnings contracted 11% QoQ due to the provision for doubtful debt for MYAirline Bhd, higher depreciation, and increased user fee – in tandem with the increase in passenger traffic.
“Its retail segment revenue has also increased 2.6x YoY, attributed to improved passenger mix, higher retail spending per ticket of RM304 compared to RM290 in 2Q23, and higher royalties.
“This was attributed to a low-base effect, resulting from one-off expenses (Cukai Makmur and legal expenses with Oracle) incurred in 3Q22. 3Q23 container revenue were flattish despite a 7% increase in container volume, due to lower storage charges and VAS contribution,” it said.
RHB IB said however, freight forwarding business is hit by a double whammy – the confluence of reduced freight rates and subdued demand continues to erode margins of the freight forwarding business.
“The sluggish quarterly performance was in tandem with the weak trade date printed, as well as softer global economic and trading activities.
“For logistics players under RHB IB’s coverage, FM Global Logistics’ 1QFY24 results were in line but recorded a decrease of 21.6% YoY drop, while TASCO’s 2QFY24 earnings were below expectations – both due to softer freight forwarding business volumes and slower-than-expected warehouse activities.
“Nevertheless, we expect TASCO Bhd to record a much better performance in 2HFY24 – from maiden contributions of new warehouses, which should fetch wider margins compared to its current rented warehouse,” it said.
GDEX also could see better days, as its 9M23 results fell short of expectations while 3Q23 marked another quarter of losses.
“The challenges stem from persistent intense pricing competition in the courier industry, slower-paced online activities, and margin pressure from higher maintenance costs and opex,” it added.
The investment house said its sector upgrade is justified, based on positive macroeconomic and sectorial indicators.
“RHB Economics expects trade momentum to strengthen beyond 4Q23, supported by the resilience of US and regional economies, global technology cycle rebound, and early signs of recovery in China (US, Asean and Chine constitute 11%, 28%, 13% of Malaysia’s total exports, respectively.”
It added the downside risks to our sector call are slower-than-expected recoveries of trade activities and the tourism industry.
All in all, the house upgrades to an OVERWEIGHT call on the sector, and named its top picks, MAHB, and TASCO.
