RHB Investment Bank (RHB IB) kept its OVERWEIGHT stance on Transportation sector, as it expects trade recovery to materialised as emphasised by RHB Economics, that would boost the sector.
In its Malaysia Sector Update, the research house said, the upswing in export momentum in November 2023, particularly in E&E products and palm oil-based items, validates the early signs of trade rebound.
“Notably, increased outbound shipments to key economies, led by China and Singapore, have been observed. RHB Economics upholds its anticipation for export data to turn positive by 1Q24.
“There is also growing evidence of improved trade activities from economic growth of China and regional economies. The expected surge in demand from China should serve as a contributing factor to the ongoing export recovery in 1Q24 and beyond,” it said today (Jan 4).
RHB IB said Sector P/E is currently at 2SD below the historical mean of 18.5x.
“Downside risks to our sector outlook include a continued slowdown in global economic growth which will further paralyse trade flows, a slower-than-expected recovery in passenger and trade volumes, and a further weakening of freight rates.”
Aside from that, the research house said red sea crisis pushed certain freight rates higher.
“Seven of the world’s top 10 shipping companies initially suspended Red Sea usage due to the Suez Canal attack. While some have resumed operations, certain container ship players remain cautious, choosing the longer route around the southern tip of Africa.
“This has led to a surge in ocean freight costs, with liner companies introducing surcharges to avoid the Suez Canal. We expect this spike in rates to be temporary, as not all container ships are diverting from the Suez Canal.
“The supply chain is better prepared for disruptions, with increased capacities in shipping lines since the pandemic,” it said.
It added the ongoing crisis in the Red Sea region is expected to provide some relief to the overcapacity challenges in the ocean vessel sector.
For aviation, RHB IB noted that MAHB awaits regulatory updates to tie up loose ends, and should be concluded by February 2024.
“The key elements of the new operating agreement (OA), encompassing development capex, expansion planning, and benchmark passenger service charge (PSC) rates – remain undecided.
“Meanwhile, the Malaysian Aviation Commission’s (Mavcom) third and final consultation papers are still pending the aeronautical charges (actual PSC, parking & landing charges) over 2024-2026 for regulatory period 1 (RP1), and the long-term regulatory framework for RP2.
“As reported, the delay in finalising these frameworks may stem from disagreements over standardising the PSC between KLIA Terminals 1 and 2. Both frameworks are slated for conclusion by Feb 2024, according to news reports and MAHB.”
Besides that, the research house said the implementation of visa-free facilities for citizens from China and India is expected to come to fruition in 1Q24, boosting Malaysia’s international tourism, which would contribute to the sector.
“In 2023, China was perceived as a significant underperformer, with Malaysia-China passenger movement only reaching 58% of the 2019 pre-pandemic level. In contrast, as of Nov 2023, Malaysia welcomed 780,532 foreign arrivals from India during the 11-month period, representing 106% of the pre-pandemic level.”
Meanwhile, it said the outlook of courier industry remains challenging, with unfair pricing competition, following the rise of online marketplace players, continues to taunt and erode profitability of courier players like GDEX.
“We believe that stricter regulations and imposition of minimum pricing per parcel are required to lift the sentiment within the sector.”
For its top pick, RHB IB named Malaysia Airports Holdings Bhd (MAHB) due to the salient recovery of international tourism at its
Malaysia and Turkey airports, driven by China’s outbound travel and the resumption of airline capacities.
“We also look forward to the resolution of regulatory overhangs in 1Q24,” the research house said.
Within the logistics sector, its top pick is Tasco Bhd (TASCO) for its diversified client base, business segments that will sustain its earnings base, and the integrated logistics services (ILS) tax incentives that offer a buffer against sector headwinds.
