• During the quarter, out of 3 transportation companies under coverage, 2 met expectations (Perak Transit and Westports), while Swift Haulage fell short of our forecast.

• We maintain a "cautious but constructive" outlook on the transportation sector, supported by strong anticipated domestic growth despite uncertainties in the global environment, such as the Red Sea crisis and ongoing trade tensions.

• Maintain a NEUTRAL call on Transportation sector with a BUY call on PTRANS (TP: RM0.96) and HOLD calls for Westports (TP: RM4.60) and Swift (TP: RM0.53).

Mixed Performance

The recent 2QCY24 results for companies under our coverage showed that two companies (Westports and Perak Transit) met expectations, while Swift underperformed due to higher-than-expected operational costs. Of the three companies, Perak Transit was the star performer, reporting a 0.1% QoQ and 10.5% YoY increase in core net profit, driven by stronger contributions from its IPTT segment, higher fuel sales, and progress claims for telco towers. Meanwhile, Westports’ revenue grew 4.6% YoY and 7.9% YTD, supported by its container and cargo services. However, net profit saw a slight decline to RM203.7mn, primarily due to rising operational costs and increased capital expenditure on new equipment.

Optimism Amid Challenges

We maintain a "cautious but constructive" outlook on the transportation sector, supported by an improving domestic growth, for which our in-house projections expect that exports and imports to grow by 6.2% and 5.8% respectively in 2024. In the port industry, company under coverage, Westports is expected to show some improvements, driven by the redirection of ship port calls from Singapore to Westports due to the earlier congestions. An increase in gateway volume is expected, supported by Malaysia’s competitive currency, regional trade shifts, and rising foreign investment, which should boost import-export activities. Although congestion is stabilizing and freight rates are expected to normalize, potentially bringing business back to usual levels, risks remain. The outlook is still by clouded by ongoing tensions in the Middle East and potential tariff increases between Western countries and China, which may dampen demand and global trade.

For logistics players, the growing e-commerce market and anticipated gradual improvement in trade as well as port throughput volumes could increase demand for logistics services. However, growth for Swift Haulage is expected to be minimal due to the fragmented logistics industry and heightened competition. Nevertheless, we foresee the warehousing and depot segment driving higher revenue growth, supported by capacity expansion and improved utilization. Swift's additional warehouses will bring its total capacity to around 1.7 mn square feet, with an expected utilization rate of 80% by the end of 2024.

For Perak Transit, we maintain a positive outlook, driven by robust passenger growth post-pandemic, the completion of Bidor Sentral, and the upcoming construction of Terminal Tronoh in 2H24, which is expected to be completed by 2026.

Neutral on the Sector

Maintain a NEUTRAL recommendation on the sector, with a BUY call on Perak Transit (TP: RM0.96), while HOLD call for Westports (TP: RM4.60) and Swift (TP: RM0.53).

Source: BIMB Securities Research - 6 Sept 2024