• AGX’s growth prospect is bolstered by rising freight rates and demand, with ADE’s expansion serving as a catalyst in the aerospace logistic sector
• Set to gain from the ongoing shift in global supply chain, with production moving out of China, fuelling industrial expansion and the e-commerce boom
• With a profit CAGR of 41%, initiate with a BUY rating and TP of RM0.84

Benefiting from regional surge in MRO services and freight rates

Listed in Feb24, AGX is an integrated third-party logistics (3PL) provider offering sea, air, and road freight services, distinguished by its focus on the specialized aerospace logistic sector. We see AGX benefiting from the growing demand for aerospace logistics in the Southeast Asia (SEA) region, underpinned by 1) a solid post-pandemic rebound in air travel, 2) a recordhigh backlog of aircraft orders, coupled with shortage of new aircraft, driving demand for Maintenance, Repair, and Overhaul (MRO) and Aircraft on Ground (AOG) services, 3) Asia Digital Engineering (ADE) expansion of MRO hangar capacity signals a surge in demand for MRO services in the region. The rise in sea and air freight rates also presents a strong growth catalyst for AGX.

Capitalizing on a booming e-commerce market

AGX’s partnership with All-Link, a China-based logistics provider, provides access to its extensive network of Chinese clients actively expanding their operations in SEA. The ongoing global supply chain reconfiguration spurred by US–China trade tension and China/Taiwan +1 strategy is expected to fuel industrial growth in the region. All-Link’s newly secured customer is also well-positioned to capture the opportunities arising from the e-commerce boom.

Initiate with BUY and TP of RM0.84

We initiate coverage on AGX with a BUY rating and target price of RM0.84, based on 15x PE on 2025E EPS, representing a 20% premium to its Malaysian-listed freight peers. We like AGX for its attractive growth prospects, driven by 1) growing demand for sea and air freight servicesfrom existing and new customers, 2) a positive outlook from All-Link’s newly secured customer, 3) sustained high freight rates, and 4) its unique positioning in aerospace logistics, benefiting from AirAsia’s expanding fleet and the post-pandemic surge in maintenance needs and delivery backlogs. Key risks to our BUY call include: weaker-than-expected volume growth, and sharp decline in freight rates.

Source: Phillip Capital Research - 3 Dec 2024