• Transportation sector specifically Ports & Logistics prospects in 2024 to improve on increase in global trade from (i) expected recovery in China, ii) monetary easing policies in major economies to take effect, (iii) higher inbound investments, and iv) projected strengthening of the Ringgit.

• We are cautious about continuing challenges confronting the industry that can impact global economic growth and create inflationary pressures.

• Maintain NEUTRAL for transportation sector. We have a BUY call on WESTPORTS (BUY, TP: RM3.95), PTRANS (BUY, TP:RM1.35) and HOLD call for SWIFT (HOLD, TP: RM0.58).

A Challenging Year for the Industry in 2023. The year 2023 has been a turbulent year with multiple crises impacting and slowing down the global economy. Nevertheless, a strong domestic economy assisted Westports to be resilient posting a 7% YoY increase in container throughput for 9M2023, mainly supported by a rise in gateway volume (+12% YoY). On the other hand, Swift Haulage, a logistic company, recorded a 9M2023 negative earnings growth of -42% YoY, due to decreasing margins as a result of higher overall operating cost, depreciation, and finance cost.

Moderately Positive 2024 Outlook. The industry anticipates a gradual improvement in trade dynamics towards the end of 2023. This positive trend is expected to extend into the year 2024, with the World Trade Organization (WTO) projecting an increase in world trade growth rate to 3.3% from 0.8% in 2023. In tandem, Bank Negara Malaysia (BNM) is projecting Malaysia’s GDP growth to grow at between 4-5% in 2024. We believe Malaysia's external trade is also expected to grow accordingly in 2024 supported by i) economic recovery in China, ii) implementation of monetary easing policies in major western economies, iii) greater investments into the country, and iv) projected strengthening of the Ringgit, which will contribute to a positive environment for trade. Nevertheless, we remain cautious about continuing challenges confronting the industry such as i) demand and supply imbalance, ii) geopolitical tensions (e.g. shipping disruptions caused by the Russia-Ukraine and Palestine-Israel war), and iii) overcapacity in shipping which can impact global economic growth and create inflationary pressures. Domestically, government policies pertaining to subsidy rationalization initiatives implementation especially those relating to utilities may potentially lead to higher costs for industry players.

NEUTRAL Call on the Sector. We maintain a NEUTRAL call on the transportation sector with a BUY call on WESTPORTS (BUY, RM3.95), PTRANS (BUY, TP:RM1.35) and HOLD call on SWIFT (HOLD, TP: RM0.58). We believe that Wesports can effectively handle global economic challenges and maintain a positive long-term outlook due to the i) enhancement of global trade, ii) sustained growth in the intra-Asia trade route, and the iii) increasing Foreign Direct Investment (FDI) in Malaysia. However, we are cautious on Swift Haulage's near-term outlook due to rising expansion costs impacting their margins. While the Warehouse & Container Depot segment's capacity expansion are expected to boost long-term earnings, the near-term uptake and economies of scale may be slow. Additionally, the group is not capitalizing on the current higher throughput volume at Port Klang, which is primarily driven by recycled paper cargo handled by the in-house hauliers of paper mill plants.

Source: BIMB Securities Research - 26 Jan 2024