Logistics players targeting to deliver earnings growth in 2017
KUCHING: Transportandlogistics players in Malaysia are set to Affin Hwang Investment Bank Bhd (AffinHwang Capital) in organising its first ever Transport and Logistics Conference 2017 saw healthy participation from institutional investors and had speakers from container-port operator Westports Malaysia, total-logistics solution provider Tiong Nam Logistics and ecommerce delivery player Century Logistics.
“Overall, all three speakers remain upbeat on delivering earnings growth in 2017, despite headwinds from a depreciating ringgit and general economic slowdown,” it said in a report yesterday.
“Zooming into details, Westports looks to benefit from the ongoing shipping alliance reshuffling with more ad-hoc container movements, which should boost container volumes, as in 2015.”
Having said that, AffinHwang Capital said with the start of the Ocean Alliance, Westports could lose up to one million twenty-foot equivalent units (TEUs) from CMA CGM due to some volume shift to PSA Internatinoal in 2018.
“However, this can be offset by the throughput from new alliance members, Evergreen and OOCL.”
Separately, the research firm said Westports could lose another one million TEUs with the migration of UASC, but added this could free up precious capacity to take up the Alliance’s containers, assuming they pick Westports as the designated transhipment hub in Asean.
“We are likely to know the decision of THE Alliance by 2Q17. For now, we lower our 2017/18 container-growth assumptions to 2.4 per cent to 1.9 per cent, leading to four to 11 per cent cuts to our EPS.”
This led the firm to maintain its transport and logistics sector rating at underweight, largely influenced by its sell calls on heavyweights Malaysia Airport Holdings Bhd (MAHB) and MISC Bhd.
“We do see sluggish global trade and slowing domestic growth being a drag on overall sectoral performance in 2017,” it observed.
“That said, we believe there are defensive picks within the sector that will be able to weather the ongoing slowdown and currency volatility. By and large, the sector’s earnings growth should continue to track Malaysia’s GDP given the high correlation, be it for movement of goods or people.
“Our economics team sees Malaysia’s GDP rising by an estimated 4.4 per cent in 2017. Among larger caps, we like Westports as an infrastructure pureplay given what we see as its strong earnings-growth profile.”
Despite near-term moderating container growth, Westports’ proposition as a long- term structural play remained attractive on the back of cost competitiveness and improving oductivity.
AffinHwang Capital also believed the rising logistics outsourcing trend will continue to pick up pace as companies increasingly scale back their non-core operations, such as logistics.
“TNL is our preferred small-cap exposure for logistics outsourcing due to its dominant scale with large warehouse capacity, and its largest trucking fleet within Malaysia.”