RHB Research said that signs of recovery are in place for the transportation sector based on positive macroeconomic and sectoral indicators.
PETALING JAYA: Emerging signs of recovery in China, a further pick-up in tourism activity and a stronger momentum in trade has led RHB Research to upgrade its call on the transportation sector to “overweight”.
The research house said in a note that signs of recovery are in place for the sector, based on positive macroeconomic and sectoral indicators.
“RHB Economics expects trade momentum to strengthen beyond the fourth quarter of 2023 (4Q23), supported by the resilience of the United States and regional economies, global technology-cycle rebound, and early signs of recovery in China.
“Note that the United States, Asean and China constitute about 11%, 28% and 13% of Malaysia’s total exports, respectively,” RHB Research said.
Within the transportation sector, RHB Research’s top picks are Malaysia Airports Holdings Bhd
(MAHB) and Tasco Bhd.
“Our preference for MAHB is premised on the anticipated recovery of international tourism – driven by the gradual recovery of China’s economy and increasing airline capacity.
“The implementation of visa-free travel for Chinese and Indian citizens should serve as a catalyst to boost international tourism, as the two countries accounted for the third and sixth largest number of tourist arrivals, respectively, to Malaysia in 2019.
“We consider China as a key laggard at present, with Malaysia-China passenger movement only reaching 58% of the 2019 pre-pandemic level,” according to the research house.
Within the logistics sector, RHB Research pointed out that Tasco stands out for its diversified client base and business segments that will sustain its earnings base.
Tasco’s integrated-logistics-services tax incentives would also offer a buffer against sector headwinds, the research house added.
Commenting on the 3Q23 results season, the research house said three transportation-related stocks under its coverage came in line with estimates, while two fell below forecast.
Westports Holdings Bhd’s 3Q23 core earnings were within RHB Research’s expectations, remaining relatively stable quarter-on-quarter (q-o-q) but reflecting a 30% year-on-year (y-o-y) improvement. This was attributed to a low-base effect, resulting from one-off expenses incurred in 3Q22.
Meanwhile, MAHB is regaining momentum in both aeronautical and non-aeronautical segments.
“The stronger y-o-y performance was not a surprise to us, given the promising growth in both passenger traffic and recovery rates.
“However, earnings contracted 11% q-o-q due to the provision for doubtful debt for MYAirline, higher depreciation, and increased user fee – in tandem with the increase in passenger traffic,” the research house said.
GDEX Bhd’s results for the nine months of 2023 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 activity, and margin pressure from higher maintenance costs and operational expenditure,” the research house said.
On the freight forwarding business, RHB Research said it has been hit by a double whammy.
The confluence of reduced freight rates and subdued demand continues to erode margins of freight forwarding businesses.
The sluggish quarterly performance was in tandem with the weak trade data printed, as well as softer global economic and trading activity.
“For logistics players under RHB Research’s coverage, FM Global Logistics Holdings Bhd’s 1Q24 results were in line but recorded a 21.6% y-o-y drop, while Tasco’s 2Q24 earnings were below expectations – both due to softer freight forwarding business volumes and slower-than-expected warehouse activities.
“Nevertheless, we expect Tasco to record a much better performance in the second half of financial year 2024 – from maiden contributions of new warehouses, which should fetch wider margins compared to its current rented warehouse,” the research house said.
