Review

1Q24 results performance was generally within expectations except for Capital A and CJ Century. Capital A’s stunning 1Q24 results beat our expectations due to higherthan-expected airfare, especially Thai AirAsia, while CJ Century’s disappointing 1Q24 results trailed our forecast due to lower-than-expected margins.

For this quarter, the sector revenue surged 70.6% YoY to RM7.4bn, boosted by all companies, except CJ Logistics and Perak Transit. In terms of PBT, all companies were profitable after Capital A registered its second quarter profit in a row, leading to 92% YoY growth in PBT. The common attributes of 1Q24 results performance include: 1) overwhelming travel demand; 2) cost escalation in terms of wages, utilities and fuel; 3) the gain in decline in jet fuel price was mitigated by weak ringgit performance.

Outlook

The worst is certainly over for the aviation sector as both Capital A and MAHB raked in decent profits sequentially alongside margin expansion, thanks to visa-free requirement in China and Malaysia.

For trade-related players, the US tariff on imports from China added fuel to the already complicated situation in the Red Sea. The tariff on some Chinese imports, which will be implemented from August onwards, has resulted in world container freight index rebounded to $4,226 on May 30. Based on our channel check, the impending tariff hike is expected to boost near-term Chinese exports before the tariff takes effect, causing shipping liners to divert to China. We understand that China has fully booked all available space in sea freight to US from June 1 to June 15. This will result in ocean freight rate to regain its altitude, which would bode well to freight forwarders.

Recommendation

In this reporting season, we have revised target prices of Capital A and CJ Century to 0.96/share and 0.37/share respectively. No change to stock calls and maintain Neutral stance on the transportation sector.

Source: TA Research - 5 Jun 2024