Kenanga Research upgrades its call to OVERWEIGHT from NEUTRAL for the seaports and logistics sector, as there have been green shoots of recovery in the intra-Asia trade and a more synchronised recovery in the global economy.
The recovery could happen in 2HCY24 on policy easing by central banks in advanced economies, Kenanga added.
“World Trade Organisation (WTO) projects global merchandise trade volume to grow by 3.3% in CY24, more than quadrupling a
0.8% growth estimated for CY23,” it said in its Sector Update today (Dec 20).
The research house said it acknowledge that global trade will have to navigate stricter regulations on carbon emissions but it continue to see a bright spot in the domestically-driven third-party logistics (3PL) sector.
“(This is due to it being) driven internally and less directly exposed to external headwinds and (it being) a beneficiary of the booming e-commerce,” it said.
It said that the industry experts project the local e-commerce gross merchandise volume to grow at a CAGR of 7% from 2023 to 2027, with size reaching RM1.9 trillion by 2027 from RM1.4 trillion in 2023.
“The booming e-commerce will spur demand for distribution hubs and warehouses to enable just-in-time (JIT) delivery, reshoring and nearshoring to bring manufacturers closer to end-customers, efficient automation system and warehouse decentralisation.
“There is also strong demand for cold-storage warehouses on the back of the proliferation of online grocery start-ups.
Kenanga said the WTO projects global merchandise trade volume to grow by 3.3% in CY24, more than quadrupling a 0.8% growth estimated for CY23.
“We believe that there is a good chance for a more synchronised recovery in the global economy towards 2HCY24 underpinned by policy easing by central banks in advanced economies. This (will benefit) port operators.
“Already, there have been green shoots of recovery in the intra-Asia trade, which mostly driven by China, as evidenced by the recent 3QCY23 results of Westports Holdings Bhd (Westports) and Bintulu Port Holdings Berhad (Bintulu Port) (MP; TP: RM5.55).
“Having beaten analysts’ forecasts, Westports raised its guidance for CY23F container volume growth to between 5% and 10% compared to between 0% and 5% previously on brisk solar panel and waste paper recycling trade,” it said.
Similarly, Bintulu Port reported a pick-up line in LNG exports to China as well as inbound and outbound cargoes from Samalaju-based smelters Press Metal Aluminium Holdings Berhad (MP; TP: RM5.00) and OM Holdings Ltd (OP; TP: RM2.07), it added.
The research house acknowledged that stricter regulations on carbon emissions may pose new challenges to global trade, particularly from the United Nations’ International Maritime Organization (IMO) and European Union (EU).
“While the exact implications of the regulation of IMO and EU’s Carbon Border Adjustment Mechanism (CBAM) on the seaport and logistics sectors remain unclear, the volume of containers heading to the EU will certainly be affected, especially those originating from China.
China is a major exporter of iron, steel and aluminium to the EU.
On the new IMO rules, Kenanga noted that effective January 2023, all ships must report their carbon intensity and will be rated accordingly.
“The ships must record a 2% annual improvement in their carbon intensity from 2023 through 2030 or face being removed from
service.”
Meanwhile, the EU’s CBAM policy could disrupt the exports of certain commodities (iron and steel, cement, aluminium, fertiliser, electricity, hydrogen) to the EU, it said.
“During the transition period between Oct 2023 and Dec 2025, EU importers must report embedded emissions in goods imported on a quarterly basis, as well as any carbon price paid to a third country.
“When the CBAM takes full effect starting 2026, importers will need to buy carbon credits reflecting the emissions generated in producing them,” it said.
Kenanga named Westports (OP; TP: RM3.80) and Swift Haulage Bhd (OP; TP: RM0.63) for its sector’s top picks.
“We like Westports for its resilient earnings underpinned by long-term contracts with key clients such as Ocean Alliance, its longterm growth prospect driven by the Westports 2 expansion project, and its price competitiveness.”
Swift was favoured for its leading position in the Malaysian haulage business commanding close to 10% market share, its value-added integrated offerings resulting in a superb pre-tax profit margin of 10% compared to industry average of 4%.
“It was also liked for the tremendous growth potential of its warehousing business, riding on the booming domestic e-commerce,” it said.
