Margin compression still impacts logistic players
KUCHING: Stagnating earnings growth continues to be a key concern among logistics players in Malaysia as the intensifying pricing competition persists to compress margins.
Researchers with Kenanga Investment Bank Bhd (Kenanga Research) in a sector report saw that the crowded last-mile delivery space is anticipated to remain saturated before heightened competition squeezes out the smaller companies, eventually leading to an industry consolidation in the longer-term, in our view.
In the meantime, stagnating earnings growth continues to be a key concern among the logistics players as the intensifying pricing competition persists to compress margins.
“Losses are expected to continue widening moving forward, owing to the margin compressive environment, which is unlikely to recover in the near-term,” it
Losses are expected to continue widening moving forward, owing to the margin compressive environment, which is unlikely to recover in the near-term. Kenanga Research
said.
“This comes as a slight recovery in logistics’ share prices. In 2018, our sector coverage posted an average loss of 44.8 per cent, dwarfing FBM KLCI and FBM SC losses of 7.5 per cent and 32.2 per cent, respectively.
“However, moving into 2019, the share had since recovered as our coverage saw an average YTD gain of 13 per cent, in tandem with the gains made in FBMSC.”
All things considered, Kenanga Research opted to stay side-lined from this sub-sector as it await meaningful earnings recovery, most likely from companies maturing out of their expansion gestation phases, and an eventual consolidation of the industry.
“We also see moderate throughput growth for Port Klang. For 2018, Port Klang saw its container throughput increasing 2.7 per cent year-on-year to 12.3 million TEUs.
“We believe container throughput has already bottomed out from the tail-end residual effects of mergers and acquisitions (M&A) activities and alliances reshuffling among global shipping liners that took place in 2017.
“Moving forward, we expect moderate growth from lowbase effect and further driven by organic economic growth. Moreover, we see a minimal near-term impact to Port Klang from US-China trade war as it should mostly only affect trans-pacific shipment routes.
“All- in, we are maintaining our view of around five per cent container throughput growth for 2019.”
In terms of capacity expansion for Port Klang, Westports has completed the design phase of CT10 to CT19 and is seeking approvals from relevant authorities.
No specific timeline has been revealed yet, but Kenanga Research did not expect CT10 to come on stream over the next 2 years.
“We maintain neutral, given the lack of any re-rating catalysts within the sector. Within our coverage, most of the calls are market perform as we do not see any positive catalyst while we have already priced in most of the downside risk.”