PETALING JAYA: There appear to be no major catalysts for the transport and logistics sector from the Budget 2020 announcement, with the feasibility studies on infrastructure projects at Port Klang and the Visit Malaysia 2020 campaign already anticipated.
In a report, Affin Hwang Research said it was maintaining its neutral stance on the sector, with a mixed earnings outlook on the players in the space.
“Positively, we expect Westports and Malaysia Airports to report firmer 2020 earnings on volume growth, improving operational efficiencies, and higher passenger service charges Meanwhile, the airline operators should continue to see a subpar (but improving) margin trend due to stiff competition.
“Lastly, the logistics companies’ earnings should remain weak due to stiff competition and high operational costs,” it said.
Affin Hwang is raising AirAsia’s 2020-21 earnings forecasts by 2-3% and forecasting AirAsia X to report a smaller loss of RM41 million in 2020, from a RM68 million net loss.
“In tandem with our earnings revisions, we are raising AirAsia’s target price to RM1.91, from RM1.87, while maintaining our ‘hold’ rating. We are also revising AirAsia X’s target price to 16 sen from 14 sen with a rating upgrade to hold from sell,” the report said.
The research house is also lowering its Brent crude and ringgit projections in view of a more modest oil-demand outlook, normalisation of supply from Saudi Arabia and not-so-aggressive easing by the US Federal Reserve.
“On the whole, the oil market in 2H19 is still projected to see a 200,000 bpd (barrels per day) oversupply, and projected to widen to an average of 620,000 bpd in 1H20 based on the EIA’s Short Term Energy Outlook report in October 2019.
“With full recovery guided now to be by November and weak global demand expected to prevail, we believe any upside to oil prices could be relatively contained,” it said.
Affin Hwang’s 2020 Brent crude oil price assumption has been lowered to US$60-65/bbl from US$65-70/bb, while its ringgit projection now stands at RM4.20/US dollar by end 2020 from its previous projection of RM4.10/US dollar.
“Although Malaysia was retained in the FTSE Russell’s World Government Bond Index, its position remains in the Watch List, which reflects some lingering uncertainty about Malaysia’s position in the upcoming interim review in March 2020.”
Overall for the sector, Affin Hwang’s top pick is Westports with a target price of RM4.22 and a hold call.
“For exposure, we like Westports for its strategically located assets, strong management team and good earnings growth trajectory. These positives are, however, largely priced-in. Avoid logistics companies due to stiff competition and rising costs,” it said.
