Investment Highlights

• The National Transport Policy (2019-2030) (NTP 2019) launched yesterday seeks to improve logistics connectivity to cater to the e-commerce boom, continuous ports upgrade and expansion plans, and enhance productivity and increase competitiveness for transportation sector. In order to achieve these goals, the Ministry of Transport (MoT) will review and update rules, act and regulations with the aim of creating a robust and adaptable regulatory framework that supports the future needs of the transportation sector.

• The MoT is looking beyond the much-talked-about Regulated Asset Base (RAB) framework (that is supposed to be finalised this month) to drive investment in the public transportation sector. One alternative is the public-private partnership (PPP) model (which is not new as during the RAB consultation period, MAVCOM already highlighted that RAB should allow the flexibility for private companies to participate in the airport operations). It also highlighted the trend towards the development of secondary airports (as what has happened in other parts of the world) to cater to the booming low-cost travelling. There are also plans to restructure the regulatory bodies in the aviation sector.

• Port operators (i.e. Westports, MMC Corp) and logistics players (i.e. Pos Malaysia, GDex) could be beneficiaries of the new policy, assuming the MoT is to put in place initiatives and assistance to facilitate the upgrading of infrastructure and facilities to improve efficiency and connectivity within the sector. There are plans to upgrade rail facilities to and within ports to ease freight movement, enhance road-rail-port connectivity, integrate rail and road links to airport, port & industrial areas, promote the Digital Free Trade Zone (DFTZ) and encourage the development of urban logistics distribution.

• The policy’s 5th thrust emphasises on expanding global footprint and promote internationalisation of transport services. The key strategies include to create an environment that facilitates local transport industry operators to become regional or global players, facilitate regional cooperation and agreement that improve the transport industry and ensure transportrelated agencies are sufficiently equipped to support the drive in improving Malaysia’s ranking in global competitiveness indices.

• We remain NEUTRAL on the transportation sector. While we believe the initiatives in the NTP 2019 are positive to the sector, they will take time to materialise. Meanwhile, prospects of airlines and airport operators are favourable backed by tourist arrival growth projected at 12% to 30mil in 2020 by Tourism Malaysia on the back the Visit Malaysia Year 2020. However, this is offset by cost pressure at AirAsia following the sale and leaseback of its aircraft. The seaport operators are beneficiaries of the US-China trade war/trade diversion, as reflected in the increased throughput recently. Our top picks for the sector are Westports (BUY, FV: RM4.73) and MMC Corp (BUY, FV: RM1.66).

Source: AmInvest Research - 18 Oct 2019