Broad recovery seen for transport stocks


The research unit, which has a “neutral” rating on the sector, pointed out that the third quarter of 2020 saw mixed financial results, with Westports Holdings Bhd and Freight Management Holdings Bhd booking better-than-expected earnings while Malaysia Airports Holdings Bhd (MAHB) and Pos Malaysia Bhd had results that were below expectations.

PETALING JAYA: The transportation sector is expected to post a broad recovery in 2021, lifted by Covid-19 movement restrictions easing with vaccines starting to be deployed globally, said RHB Research.

The research unit, which has a “neutral” rating on the sector, pointed out that the third quarter of 2020 saw mixed financial results, with Westports Holdings Bhd and Freight Management Holdings Bhd booking better-than-expected earnings while Malaysia Airports Holdings Bhd (MAHB) and Pos Malaysia Bhd had results that were below expectations.

WestportsWestports

RHB Research said Westports’ third quarter results were mainly due to a stronger-than-expected container volume rebound during the quarter (29% jump quarter-on-quarter) on pent-up demand.

Hence, the research unit is forecasting a softer fourth quarter earnings for Westports (15% drop quarter-on-quarter), as well as its 20-foot equivalent units for 2020 to dip 5% year-on-year (y-o-y) before seeing a mild volume recovery of 2% growth y-o-y, followed by earnings growth of 8% y-o-y in 2021.

Meanwhile, Freight Management delivered a strong set of results for its first quarter ended Sept 30,2020, which exceeded expectations owing to the third-party logistics unit’s healthy margins expansion.

This, in addition to the stake disposal of its loss-making marine associate, is expected to add on to the company’s multi-modal freight forwarding businesses – the main profit driver – which should stay resilient going forward.

This is despite Covid-19’s persisting impact, given Freight Management’s diversified customer base and geographical presence.

As for MAHB, (pic KLIS ireport pic below) its third-quarter 2020 results miss came on larger-than-expected operating costs, likely affected by a lumpy doubtful debts provision during the quarter.

RHB Research expects MAHB’s fourth quarter to remain loss-making, in view of the extended conditional movement control order (MCO) amid a resurgence in Covid-19 cases.

MAHB’s 2021 earnings recovery will be dependent on the timing and acceptance levels of the Covid-19 vaccine globally, with widespread deployment expected in the second half of 2021.

Meanwhile, Pos Malaysia recorded a slight earnings miss in the third quarter, relative to RHB Research’s expectations of a breakeven quarter, mainly on lumpy receivables impairment.

Nevertheless, its underlying operational turnaround is evident, with normalised earnings before interest and taxes turning positive in the first nine months of 2020 while adjusted free cash flow (ex-leases) came up to RM100mil – boosted by February’s commercial postal tariff hike and hike in courier volumes due to accelerating e-commerce adoption following the MCO.

Going forward, RHB Research expects Pos Malaysia to post a much-awaited return to profitability in the first quarter of 2021 with the anticipated easing of the MCO lifting its aviation and logistics segments once more.

Pos Malaysia could also be a major beneficiary of potential regulatory reforms for the postal and courier industries.

RHB Research’s preferred sector pick is Pos Malaysia, on which it has a “buy” call and a target price of RM1.40.

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