PETALING JAYA: While the reopening of China’s economy may boost growth for both seaports and airports, recovery to pre-pandemic levels is unlikely within 2023 due to the prevailing challenging environment.
For one thing, the reopening of the world’s second-largest economy is likely to be gradual as execution is expected to remain choppy.
For another, tepid global economic growth, underpinned by geopolitical tensions and persistent supply chain disruptions, could also lead to relatively soft global trade flows for 2023.
Noting the challenges, RHB Research has maintained its “neutral” stance on the transportation sector in Malaysia.
The brokerage continued to rate Tasco Bhd as its top sector pick, citing the diversified logistics group’s sustainable strong performance and attractive valuation.
“We view positively the pickup in passenger throughput in recent months, but choose a more cautious stance on the likelihood of passenger throughput returning to pre-pandemic levels – especially with regard to foreign travellers,” RHB Research explained in its report yesterday.
“With Prime Minister Datuk Seri Anwar Ibrahim having urged the tightening of border controls to maintain cognisance of countries with still-high infection rates, we believe travellers from China are likely to leave a volume shortfall in the local tourism scene, given the resurgence resulting from the country’s hasty reopening,” it added.
As such, RHB Research said it stayed “neutral” on Malaysia Airports Holdings Bhd (MAHB), as travellers from China historically account for about 12% of total international throughput.
“That said, we do not rule out the possibility of pent-up demand that may arise as a result of China’s reopening once the current resurgence blows over,” it said.
Elsewhere, it noted, the Malaysian Aviation Commission or Mavcom’s decision to keep airport tariffs status quo could also act as a stumbling block to MAHB’s earnings growth.
RHB Research said it remained cautiously optimistic on global economic growth prospects.
It cited the International Monetary Fund’s projection for a slower global growth at 2.7% in 2023, as compared to the forecast of 3.2% in 2022.
This is due to the simultaneous slowdown of the three big economies, namely, the United States, European Union and China.
Similarly, the brokerage said it was also cautious on global trade flows for 2023 at this juncture, which could pose as a downside risk to container throughput growth for Westports Holdings Bhd that historically had transhipment make up the bulk of its throughput revenue, at around 60% of total container volume.
“We look forward to China’s reopening as a potential re-rating catalyst, but maintain cautiousness of near-term challenges still present in the supply chain,” RHB Research said.
Meanwhile, the brokerage noted that the Drewry World Container Index had dropped by around 80% year-on-year.
It added that industry players believe freight rates were unlikely to pick up again in 2023.
“Concerns surrounding the impact on earnings as a result of normalising freight rates are not unfounded, so we advocate for investors to look into diversified logistics players such as Tasco, which should enjoy still-robust export and import volumes driven by domestic demand,” it explained.
RHB Research added that it expected Malaysia’s economy to expand 4.5% this year.