The Maersk Sentosa container ship sails southbound to exit the Suez Canal in Suez, Egypt, on Thursday, Dec. 21, 2023. Photographer Stringer/Bloomberg
PETALING JAYA: The ongoing Israel-Iran war and the impending US reciprocal tariffs will continue to keep the transportation sector on edge, adding further uncertainties to the equation.
Given the “fluid nature” of the geopolitical and trade-related developments, RHB Research is keeping its “neutral” rating on the sector.
It also retained its earnings forecasts for now, with the exception of Westports Holdings Bhd
.
In a note, the research house said the recent escalation in the Israel-Iran war has ramped up uncertainties over global seaborne trade, particularly key trade passages near regional flashpoints, namely the Suez Canal and the Strait of Hormuz.
The strait is located between the Persian Gulf and the Gulf of Oman.
Traffic at the Suez Canal had already slowed down even before the war broke out as shippers rerouted their vessels around the Cape of Good Hope due to the risk of being attacked by Houthi rebels.
“While the Strait of Hormuz remains open, we do not rule out the possibility of this passage being blocked if the war further escalates.
“If a blockade or a serious disruption happens, route diversions around the African continent might be considered by the shipping lines, which may result in port congestion across various regions due to longer travel times,” noted RHB Research.
Being one the largest oil chokepoints, RHB Research said disruptions at the strait could also result in Saudi Arabia and the United Arab Emirates pipelines being used as alternatives.
This is despite the fact that their combined capacity of 6.5 million barrels of oil per day (bpd) is far below Strait of Hormuz’s oil flows of over 20 million bpd.
“Higher oil prices, coupled with potentially rising insurance premiums, could drive up freight rates.”
On the transportation sector’s first-quarter of financial year 2025 (1Q25) earnings, RHB Research said the results were generally in line with expectations, with Westports’ 1Q25 performance meeting estimates.
The port operator’s performance made up 23% and 24% of the research house’s and consensus full-year forecasts.
“Despite the upward earnings revision due to tariff hikes, this port counter is fairly valued – it is trading at its historical mean, with limited upside potential.”
The tariff hikes refer to the 30% increase in container tariffs for Port Klang from July 1.
This will be implemented in three stages – starting with a 15% upward revision effective until end-2025, followed by an 8.7% increase in 2026 and a final 4% upward adjustment for 2027 onwards to bring the effective hike to 30%.
Beyond Westports, the logistics players’ results disappointed in 1Q25.
“Within the logistics sector, we remain positive on Tasco Bhd, which is our top pick due to its diversified client base and business segments, which help maintain earnings stability.
“Additionally, the integrated logistics services tax incentives provide a buffer against challenges within the sector,” said RHB Research.
