• Top Pick: TASCO. 3Q24 sector results generally met estimates, with one stock under coverage posting in-line numbers, one exceeding expectations, and two falling below estimates. Maintain sector NEUTRAL, in line with similar calls on heavyweights like Malaysia Airports (MAHB) and Westports.
• In-line results. MAHB's 9M24 performance came in line with our and Street's estimations. Revenue rose 20% YoY to MYR4.3bn, aligning with the ongoing traffic recovery that sees a higher international passenger mix, which results in higher passenger service charges and retail spending. Consequently, 9M24 core earnings grew 72% YoY to MYR592m. Post results, we cut our 2024 Malaysia passenger traffic forecast to 95.2m - we believe our previous 105.9m assumption was too bullish.
• Stronger-than-expected results by the marine port player. Westports posted a 3Q24 core net profit of MYR228m (+11.8% QoQ, +16.5% YoY), bringing 9M24 earnings to MYR636m (+10.7% YoY), above our and Street's estimates at 77% of full-year forecasts. The deviations were mainly due to lower-than-expected opex and higher-than-expected rental revenue. We revise up our FY24-26F earnings by 1-3% to include lower depreciation under the new concession agreement.
• Small-cap logistics players missed expectations. FM Global Logistics' 1QFY25 (Jun) core net profit fell 23% YoY (+3% QoQ) to MYR7m, ie below our expectations, at 16% of full-year estimates for FY25. The deviation was mainly due to higher-than-expected opex. Conversely, TASCO's 1HFY25 (Mar) core earnings were down 17% YoY to MYR24.9m, falling short of expectations at 35% and 33% of our and Street's full-year estimates. The weaker earnings were mainly on weaker-than-expected contributions from the freight forwarding segment.
• Outlook. Our economists remain positive on 2025 global demand, forecasting above-consensus GDP growth of 2% and 4.8% for the US and China. However, they are cautious about potential trade impacts from US protectionist policies. We believe 2025 will be another year of growth for Malaysia's air passenger movements, which are expected to surpass pre-pandemic levels in 2025 - supported by visa-free travel for Chinese tourists, e-Gate immigration, and airport expansions in Subang, Penang, and Kota Kinabalu. Regional seaport congestion has eased as shippers adapt to longer routes amid Yemeni Houthi rebel attacks on vessels using the Red Sea and Gulf of Aden. In logistics, DHL anticipates elevated freight rates due to potential US port strikes, tariffs, and prolonged Red Sea diversions.
• We maintain our sector NEUTRAL sector weighting, given similar calls on heavyweights like MAHB and Westports. We think these infrastructure players are fairly valued, as the latter's share price has risen 32% to its peak this year while the former's privatisation is progressing (set for delisting in 1Q25). Within the logistics sector, we remain positive on TASCO (our Top Pick) due to its diversified client base and business segments, which help maintain earnings stability. Additionally, the integrated logistics services or ILS tax incentives provide a cushion against challenges within the sector. Downside risks include a continued slowdown in global economic growth - which will paralyse trade flows - and a further weakening of freight rates. The opposite represents the upside risks.

Source: RHB Research - 27 Dec 2024