We keep our NEUTRAL call on the sector, premised on gradual earnings recovery from ports players starting from 2H 2021 on the back of Covid-19 vaccinations rollouts, normalization of domestic and global economic activities, as well as pent-up demand effect in general. Nonetheless, the recovery path could be uneven, depending heavily on how well the Covid-19 vaccinations progress and continuation of lockdowns. On the other hand, POSM is expected to take a longer route to profitability with a challenging environment capping its postal services segment’s profitability. It will also continue to operate in a competitive environment pressured by price and cost challenges, further hampered by loss of revenue from ground handling and in-flight catering with international borders still closed, but reprieved by the high parcel volume from stronger e-commerce and online markets.

WPRTS – recovery in throughput volumes starting 2HCY21. Since the majority of ships that call at Westports facilities are from the intra-Asia routes, the impact from possible future shutdowns and quarantines will likely hit throughput, though the extent is uncertain depending on the duration. Going forward, we are cautiously optimistic that starting 2HCY21, recovery will likely be spurred by Covid-19 vaccinations, normalization of domestic and global economic activities, and pent-up demand effect in general. Nonetheless, the road to recovery may be uneven depending on how well the Covid-19 vaccinations progress. While we believe that WPRTS is well on track with its expansion plans to cater for future trade volume growth, we reiterate our view that the expansion project is a longer-term prospect with full completion by 2040. The approved new container terminal expansion project is currently pending only land conversion preparation and concession agreement negotiation with the Government of Malaysia. With total capex for Westports 2 (CT10-17) amounting to ~RM10b, the new CTs are expected to nearly double its capacity to 27m TEUs from 14m TEUs spread over 20 years. With anticipated full completion only by 2040, we view this investment as a very long-term play for the group, thus ruling out any earnings accretive development over the next few years. The global supply chain is adjusting to a combination of factors, such as higher consumer demand for containerised goods in Western economies, lockdowns SOPs and a global supply chain adjustment adhering to COVID-19 precautionary measures. All in, we keep our MP call for WPRTS with a TP of RM4.20

MMCCORP - Ports (especially PTP) and associates, Malakoff are the main earnings contributors. Meanwhile, its recent privatization proposal notwithstanding, MMCCORP’s earnings are expected to be driven by its ports (especially PTP) and associate Malakoff, underpinned by economic recovery momentum riding on the resumption of the global and domestic trade activities. Its Port and Logistics division has been showing improvement in performance, underpinned by economic recovery momentum since the resumption of the global and domestic trade activities. Currently, its ports portfolio consists of PTP, Johor Port, Northport, Penang Port and Tanjung Bruas Port. That said; we do not discount management continuing their pursuit to acquire additional ports to boost their profile as the largest port operator in the country. We gathered that while its construction order-book is currently at c.RM4.9b (90% from MRT Line 2, expected to be completed by 2022), management is actively bidding for new projects in order to meet its targeted order-book replenishment of c.RM500m per annum. Going forward, MMCCORP’s earnings are expected to be largely buoyed by its ports, especially PTP as well as operation and utilities, namely Malakoff. ACCEPT OFFER at offer price of RM2.00 per share.

POSM taking a longer route to profitability in a challenging environment. POS’ inability to close down post offices, coupled with its unionised workforce could well mean profitability at its postal services segment is capped. The courier business will continue to operate in a competitive environment pressured by price and cost challenges. The group is continuing with its efforts to manage cost with forecasted yearly RM24m costs saving. The reinstatement of MCO 3.0 should boost online shopping and likely to have a positive impact on its courier volume. Parcel volume is expected to surge in 2QFY21 driven by online sales campaigns, offsetting the reduction in footfall into post offices resulting in a dip in its retail business revenue. For the rest of the year, parcel volume will continue to be elevated under the “new normal environment” especially with the introduction of PAKEJ program that is expected to drive more courier volume, and further driven by online campaigns, offsetting the reduction in footfall into post offices as mentioned above. However, its aviation division has continued to suffer losses due to loss of revenue from ground handling and in-flight catering pursuant to flight cancellations in the wake of Covid-19 pandemic, as international borders have remained mostly closed. Maintain MP with a TP of RM0.800 based on 10x FY22E EPS. The saving grace is a 5% dividend yield

Maintain NEUTRAL on the sector given the lack of near-term catalysts. Meanwhile, its recent privatisation proposal notwithstanding, MMCCORP’s earnings are expected to be driven by its ports (especially PTP) and associate Malakoff, underpinned by economic recovery momentum riding on the resumption of global and domestic trade activities. As for WPRTS, we expect it to recover gradually starting from 2021 on the back of Covid-19 vaccinations, normalization of domestic and global economic activities, and pent-up demand effect. On the other hand, POSM’s losses has narrowed as reported in its recent quarterly results largely due to the postage tariff revision in Feb 2020 and supported by the high parcel volume from stronger e-commerce and online market activities. However, its aviation division continued to suffer losses due to loss of revenue from ground handling and in-flight catering pursuant to flight cancellations in the wake of Covid-19 pandemic as international borders are still closed.

Source: Kenanga Research - 5 Jul 2021