AmInvest ‘Underweight’ on transport and logistics amid varying recovery rates


AMINVESTMENT Bank Bhd (AmInvest) is maintaining its ‘Underweight’ recommendation on the transportation and logistics sector, as the speed and path of recovery vary among the sub-segments within the industry.

“The recovery of global trade augurs well for the port segment. However, the air travel industry faces a bumpy path given the uncertainties surrounding the opening of borders and recapitalisation plans of airlines.

“While the logistics segment is technically a beneficiary of the Covid-19 pandemic (particularly, the parcel delivery on the back of booming online shopping), it is weighed down by a crowded playing field with cut-throat competition,” the research firm wrote in a report yesterday.

It added that business confidence globally — as indicated in Purchasing Managers’ Index (PMI) — has shown upticks in recent months, which shall translate into a more robust global trade, and hence higher throughput at seaports.

The research house projects container throughput at Westports Holdings Bhd and the ports of MMC Corp Bhd to bounce back by 10% and 8% respectively in 2021 after contracting by 15% and 10% in 2020.

Container throughput should return to pre-pandemic levels in 2022, it added.

There have also been green shoots of recovery in the air travel industry, as indicated in the increase in global daily commercial flights since April 2020 on the back of easing in travel restrictions globally.

However, as at end-June 2020, flights were still at only about 40% of the level registered at the same time last year, AmInvest noted.

It expects passenger volume for AirAsia Group Bhd to rebound by 35% in 2021 after shrinking by 50% in 2020, which is in line with the Malaysian Aviation Commission’s projection of a 49% to 50% contraction in Malaysia’s air traffic passenger volume this year.

As for the logistics segment, the parcel delivery segment is seen as a winner of the current situation as the pandemic and the resultant social distancing accelerate the change in consumers’ shopping habits from physical to online channels.

However, the segment has low entry barriers — with 111 players as at June 2020 — and the incumbents are expanding.

Pos Malaysia Bhd plans to double its daily automated parcel processing capacity — currently at 500,000 — by 2025, while GD Express Carrier Bhd — with an average sorting capacity of 130,000 parcels per day — has allocated RM40 million for expansion of its automated sorting hub.

AmInvest’s top pick within the sector is utilities and infrastructure group MMC, which has diversified businesses in ports and logistics, energy and utilities, engineering and industrial development.

“We see MMC as a recovery play, given the expected improvement in its port throughput over the next six to 12 months as economies reopen.

“We see value in MMC with its port business being valued at 12 times forward price-to-earnings on a stand-alone basis,” the research house said.

It has a ‘Buy’ call on the conglomerate, with a fair value of RM1.13. Shares of MMC closed 1.4% or one sen higher at 73 sen yesterday, valuing the group at RM2.22 billion.