• Economic Recovery will lead Trade Volume Growth. Malaysia’s trade performance showed strong signs of recovery in 2024, with exports expanding by 4.7% in 11M24, reversing an 8.0% contraction in 2023. Growth was driven by a 10.1% increase in agriculture exports, supported by favorable crude palm oil (CPO) prices averaging RM3,900 to RM4,100 per metric tonne. The agricultural sector benefited not only from improved commodity prices but also from higher demand in key markets like China, India, and the Middle East, underscoring Malaysia’s competitive edge in agricultural commodities. Meanwhile, the manufacturing sector recorded a 4.8% growth, capitalizing on strengthening global demand and a technology sector upcycle, particularly in the semiconductor and electronics segments, which remain critical contributors to Malaysia’s exports. For 2025, the projected GDP growth of 4.7% is anticipated to accelerate trade volume growth, translating into higher container throughput at key gateway ports, including Port Klang and Johor Port. Based on management's guidance and current trade recovery trends, we forecast Westport to achieve a TEU volume of 11.35 mn in 2025, representing a 2.5% growth. This projection aligns with the company's single-digit growth outlook and reflects its capacity to capitalize on the recovery in global and regional trade dynamics.

• Growth in Transshipment Activities through Re-exports. Re-exports are set to continue driving transshipment growth, supported by Malaysia’s strategic port locations such as Port Klang and PSA Singapore, which remain pivotal due to their proximity to major shipping lanes and well-established connectivity. With key trade corridors to China and the Middle East, these hubs are well-positioned to capitalize on emerging regional trade dynamics. As a regional hub for multinational corporations (MNCs), Malaysia is poised to see a revival in re-export activity, which currently represents approximately 20% of total exports. Historical trends, notably during Trump’s first presidency, show how shifts in global trade policy such as the imposition of tariffs that can redirect supply chains through intermediary ports, driving re-export growth. If similar protectionist measures re-emerge in 2025, Malaysia’s re-export activity could increase, further bolstering transshipment volumes and reinforcing the country’s role in global logistics. Looking ahead, the sector's performance especially for stocks under our coverage, such as Westport and Swift Haulage will depend on sustained gateway growth and the recovery of transshipment activities, with Intra-Asia trade continuing to serve as a key growth driver. The potential for increased transshipment is high, especially as Intra-Asia trade volumes expand, positioning Malaysia to benefit from rising demand for intermediary ports in the region.

• E-Commerce Driving Logistics Growth. In 2025, the e-commerce sector is expected to remain as key growth driver for logistics, with increasing demand for warehousing, fulfilment centres, and last-mile delivery services. Malaysia’s strategic location within ASEAN and its established connectivity position it to benefit from growing regional ecommerce activities. As the market expands, demand for distribution hubs and warehouses is set to increase, providing significant opportunities within the logistics sector. This growth is particularly favorable for stocks under our coverage, with Swift’s Warehousing and Depot segment poised to capitalize on the increasing need for efficient storage and distribution solutions to support e-commerce growth across the region. Swift Haulage has strategically expanded its warehousing capacity with the acquisition of the Perai Warehouse (118,000 sqft) in 3Q24 and the ongoing construction of a new 200,000 sqft facility in Penang. These developments are expected to increase the company's total warehouse capacity to approximately 1.9 mn sqft by 2025. With this expansion, Swift Haulage is well-positioned to capitalize on the burgeoning e-commerce sector, which continues to drive demand for warehousing, distribution, and last-mile delivery solutions.

• Infrastructure Development and Expansion. As consumer behaviours continue to evolve, with growing expectations for faster and more efficient deliveries, port and logistics operators are expected to accelerate innovation in their infrastructure. The drive for enhanced operational efficiency will lead to increased adoption of technologies such as fleet optimization, automation, and eco-friendly delivery solutions. These advancements will help meet the rising demand for seamless, timely deliveries, particularly in the context of e-commerce growth. In Malaysia, significant infrastructure projects, including the development of Carey Island and the Westport 2 expansion, are poised to play a critical role in supporting this growth. The Carey Island development, with its planned port expansion, is set to position Malaysia as a key logistics hub in the region, accommodating the increasing traffic from global trade and boosting transshipment activities. Similarly, the Westport 2 expansion is expected to enhance Port Klang's capacity, improving container handling efficiency and providing the necessary infrastructure to support growing trade volumes. Together, these developments will not only improve Malaysia’s logistics capabilities but also reinforce its position as a regional trade and transshipment hub.

• Tourism Growth Driving Transportation Demand. In 2025, Malaysia’s tourism sector is set to experience strong growth, supported by the country’s role as ASEAN Chairman and a steady increase in foreign tourist arrivals. By September 2024, foreign tourist arrivals had already recovered to 90% of pre-pandemic levels, and with visa-free incentives for several countries, the influx is expected to continue growing. As Malaysia also hosts more international business events in 2025, the demand for transportation services is poised to rise. Companies under coverage, such as Perak Transit, stand to benefit from this trend. With an expected increase in both leisure and business travel, Perak Transit's strategically located terminals in Perak will see higher foot traffic from both tourists and business travellers. This heightened demand will drive increased usage of their bus services, particularly for intercity travel between key hubs like Ipoh, Penang, and Kuala Lumpur. Additionally, the rise in footfall at their terminals could translate into higher rental income from tenants, further strengthening Perak Transit's revenue streams and growth prospects in 2025.

• Maintain NEUTRAL on Transportation sector. We maintain our NEUTRAL stance supported by resilient domestic demand driven by: i) the economic recovery, which is expected to strengthen both domestic consumption and trade activity, ii) continued growth in re-exports, and iii) the rapid expansion of e-commerce, driving sustained growth in the port and logistics sector. Nonetheless, downside risks persist, including: (i) geopolitical risks and policy uncertainties, (ii) port congestion, which may result in delays and increased costs for shippers, and (iii) the global economic slowdown, which has reduced trade volumes and negatively impacted throughput levels.
  
  At this juncture, we maintain a BUY call on Perak Transit (TP: RM0.94), while HOLD call for Westports (TP: RM3.95), and Swift (TP: RM0.55).

Source: BIMB Securities Research - 2 Jan 2025