RHB Investment Research Reports

Transportation - Signs Point To a 2024 Recovery; Still O/W

Publish date: Thu, 04 Jan 2024, 12:47 PM
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  • Still O/W; Top Picks: Malaysia Airports (MAHB) and TASCO. MAHB remains a Top Pick due to the salient recovery of international tourism at its Malaysia and Turkey airports, driven by China’s outbound travel and the resumption of airline capacities. We also look forward to the resolution of regulatory overhangs in 1Q24. Within the logistics sector, we still like TASCO for its diversified client base, business segments that will sustain its earnings base, and the integrated logistics services (ILS) tax incentives that offer a buffer against sector headwinds.
  • MAHB awaits regulatory updates to tie up loose ends. The key elements of the new operating agreement (OA), encompassing development capex, expansion planning, and benchmark passenger service charge (PSC) rates – remain undecided. Meanwhile, the Malaysian Aviation Commission’s (MAVCOM) third and final consultation papers are still pending the aeronautical charges (actual PSC, parking & landing charges) over 2024- 2026 for regulatory period 1 (RP1), and the long-term regulatory framework for RP2. As reported by The Edge, the delay in finalising these frameworks may stem from disagreements over standardising the PSC between KLIA Terminals 1 and 2. Both frameworks are slated for conclusion by Feb 2024, according to The Edge and MAHB.
  • Red sea crisis pushing certain freight rates higher. Seven of the world's top 10 shipping companies initially suspended Red Sea usage due to the Suez Canal attack. While some have resumed operations, certain container ship players remain cautious, choosing the longer route around the southern tip of Africa. This has led to a surge in ocean freight costs, with liner companies introducing surcharges to avoid the Suez Canal. We expect this spike in rates to be temporary, as not all container ships are diverting from the Suez Canal. The supply chain is better prepared for disruptions, with increased capacities in shipping lines since the pandemic.
  • Trade recovery is materialising, as emphasised by RHB Economics. The upswing in export momentum in Nov 2023, particularly in E&E products and palm oil-based items, validates the early signs of a trade rebound. Notably, increased outbound shipments to key economies, led by China and Singapore, have been observed. RHB Economics upholds its anticipation for export data to turn positive by 1Q24. There is also growing evidence of improved trade activities from China's economic growth and that of regional economies. The expected surge in demand from China should serve as a contributing factor to the ongoing export recovery in 1Q24 and beyond.
  • Downside risks to our sector outlook include a continued slowdown in global economic growth which will further paralyse trade flows, a slowerthan-expected recovery in passenger and trade volumes, and a further weakening of freight rates.

Source: RHB Securities Research - 4 Jan 2024

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