Figure 1.0: Bursa Malaysia Transportation & Logistics Index, Tradingview

The Bursa Malaysia Transportation & Logistics Index has recently shown a robust upward trend, capturing the attention of investors. But what exactly is driving the strong performance and fund flow into the logistics industry?

Economic Activity Recovery

According to Bank Negara Malaysia, the economy grew at a rate of 4.2% in Q1 2024, up from 2.9% in Q4 2023. This growth was driven by stronger private expenditure and a positive turnaround in exports. Household spending also increased due to higher employment and wages. Notably, the manufacturing sector saw a rebound in both electrical and electronic (E&E) and non-E&E industries. As all manufacturing activities rely on logistics and transportation, the heightened demand locally and abroad is expected to keep trucking, warehouses, haulage, and freight forwarders busier.

Beneficiary of US Tariff Hike

Figure 2.0: America’s tariff Increases on China (2024 - 2026), Visual Capitalist

Recently, US President Joe Biden announced tariff hikes on a range of Chinese imports to protect American workers and businesses. This move is expected to benefit Malaysia, especially with the China Plus One strategy implemented by various multinational corporations (MNCs). The increased foreign direct investment (FDI) and relocation for supply chain divergence will boost Malaysia's logistics industry.

Investment Opportunity: KGW Group Berhad

Figure 3.0: Value chain of logistics industry, Protege Associates

Given the busy economic activities, companies with exposure to routes from Malaysia to the US are worth considering. One such company is KGW Group Berhad. KGW operates with an asset-light model as a Non-Vessel Operating Common Carrier (NVOCC) and holds a leading position in the Malaysia-US route.

At its peak, KGW generated RM16.3 million in profit after tax (PAT). Compared to its current market capitalization of RM82.0 million, there is significant upside potential, making KGW an undervalued stock in our opinion.

Conclusion

With the logistics industry poised for growth due to economic recovery and increased demand from the US tariff hikes, KGW Group Berhad stands out as a promising investment opportunity. Investors should keep an eye on this stock as it has the potential to double soon.

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