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TASCO is our Top Pick, as we continue to favour service providers within the logistics and transportation industry – particularly freight forwarders and 3PL players – with diversified business pillars that should continue to record robust net profits and remain shielded from an ongoing weakening operating environment. Still NEUTRAL. This report marks the transfer of coverage to Alexander Chia.
China’s reopening as key play. The International Monetary Fund expects global growth to slow down to 2.9% in 2023 (2022: 3.4%), citing the simultaneous slowdown of the three big economies of the US, EU, and China. Our economists project Malaysia’s 2023 current account balance at 2.7% of GDP, with a moderation in exports and imports in 1H23. At this juncture, we are cautious on global trade flows for this year that could pose a downside risk to the container throughput growth for Westports, as transhipment makes up c.60% of its total container volume. We expect China’s reopening to act as a re-rating catalyst for both Malaysia Airports (MAHB) and Westports in terms of increased passenger traffic and container throughput growth.
Air freight global outlook. According to DHL, global forwarding air freight market outlook remained low at -20% YoY (in demand volume) in Feb 2023. This was likely attributable to a high inflation rate, ocean overcapacity, and high inventories levels. Moving forward, there is no expectation for a surge in demand for air freight – as indicated by a comparatively lower Purchasing Managing Index – at least not until inflation slows down. Coupled with a lower demand, capacity recovery for air freight should continue on the back of improvements in belly capacity, as both business and passenger leisure travel begin to recover. While air freight rate has come off from its peak in mid-2022, the market remains competitive due to higher-than-normal jet fuel prices (>USD100/bbl) as demand for travel has picked up.
Ocean freight global outlook. Demand for ocean freight is flattening out as well, with signs for a potential recovery on some trade lanes and easing of congested ports. Nevertheless, a shift in policy focus from zero COVID- 19 to economic stimulus has advanced mainland China’s growth, which should, in turn, lift trade flows within the Asia-Pacific region. Freight rates continue to slide, but at a much slower pace, and have returned to pre- pandemic levels as capacities across ports are freed up.
Risks to the sector: Downside risks include a worse-than-expected resurgence of COVID-19 cases in China – resulting in a longer-than- expected rolling lockdown – and a slowdown in global economic growth. The opposite represent the upside risks.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....