• Two transportation stocks under our coverage produced quarterly results that were in line with our forecast while one was below.

• We maintain a cautious stance on the sector's near-term prospects, foreseeing risks such as Red Sea conflicts, a global economic slowdown and rising operating costs.

• Maintain a NEUTRAL call on Transportation sector with a BUY call on PTRANS (TP: RM1.40) and HOLD calls for Westports (TP: RM3.95) and Swift (TP: RM0.55).

Mixed Results

In summary, the recent 4Q23 results season for transportation stocks, including Westports Berhad (Westports), Swift Haulage Berhad (Swift), and Perak Transit Berhad (PTRANS), revealed a mixed picture. While Westports and PTRANS met expectations, Swift’s earnings did not meet our expectation. Westports experienced a notable 6.3% YoY increase in revenue, driven by an 11% YoY rise in container volume (transhipment: +5%, gateway: +20%). However, PAT declined by -12% YoY due to elevated operating costs and a higher effective tax rate. Conversely, PTRANS saw generally higher YoY results for top-line and bottom-line, attributed to increased contributions from integrated public transportation terminal operations and ongoing telco tower projects. Meanwhile, Swift's FY23 core PATAMI performance dropped 20%, due to elevated operating costs and interest expenses exceeding our initial expectations.

Cautious on Near-term Prospect

We are cautious for the transport sector in the near term due to potential downside risk from Red Sea crisis. Westports and Swift maintain its guidance for low single-digit container volume growth in FY24, referring to risks such as Middle-East conflicts, a global economic slowdown, rising operating costs, and potential setbacks in expansion plans and tariff revisions. Nonetheless, we have a more optimistic view on the sector’s long-term growth outlook. Westports recently finalized a significant Third Supplemental Privatization Agreement with the federal government and PKA, extending port operation concessions for both existing (CTs 1 to 9) and new facilities (CTs 10 to 17) by 58 years, projecting a substantial capacity increase from 14 million TEUs to 27 million TEUs upon completion of the new CTs. Simultaneously, Swift launched an eco-friendly warehouse in Westport with a 70% occupancy rate primarily taken up by Sharp, and plans for additional warehouse expansions are in progress. Similarly, PTRANS is advancing with the development of Bidor Sentral and expects earnings to reflect these advancements in the second half of 2024, with plans underway for a new terminal in Tronoh, showcasing strategic expansion initiatives.

Neutral on the Sector

Maintain a NEUTRAL recommendation on Transportation sector as we remain cautious, considering the potential prolonged impacts of Middle-East conflicts on Europe-Asian trade. These conflicts could unfavourably influence the sector's performance, leading to extended transit times and increased costs associated with longer journeys. We have a BUY call on PTRANS (TP: RM1.40) while HOLD call for Westports (TP:RM3.95) and Swift (TP: RM0.55).

Source: BIMB Securities Research - 7 Mar 2024