The transportation sector in Malaysia has seen a significant shift in recommendations, with the sector being downgraded to NEUTRAL from OVERWEIGHT. This change follows a mixed bag of earnings reports from the sector's key players. Malaysia Airports Holdings Berhad (MAHB) exceeded expectations for the first half of 2024, though it fell short of street estimates primarily due to lower-than-anticipated tax expenses. The airport operator's core profit surged 74% year-on-year, driven by increased international passenger traffic and higher passenger service charges. Despite this, the overall sector outlook has been downgraded to NEUTRAL, reflecting the performance of major players like MAHB and Westports.

Westports Holdings Berhad, a marine port player, reported in-line results for the second quarter of 2024. Its core net profit rose by 4.6% year-on-year, bringing its half-year earnings to RM408 million, a 7.9% increase from the previous year. The company managed a total of 2.73 million TEUs in 2Q24, a 1% year-on-year increase, with container revenue growing 6.6% due to higher value-added services and increased storage units. This performance met expectations, showcasing stability in the marine port segment.

In contrast, smaller logistics companies such as TASCO and FM Global underperformed despite elevated freight rates. TASCO's first-quarter core net profit of RM10.6 million was 25% lower year-on-year and only 15% of the full-year estimates, attributed to weaker segments in contract logistics and air freight forwarding, as well as adverse foreign exchange movements. FM Global also reported a decline in core earnings for the fourth quarter of 2024, down 6% year-on-year, ending the fiscal year with RM32.6 million, an 18% drop from the previous year.

Looking ahead, Malaysia's air passenger movements have rebounded to 90% of pre-COVID-19 levels by the second quarter of 2024, with the expectation to reach full recovery. The privatisation of MAHB is anticipated to proceed pending final approval. Meanwhile, Westports is expected to see increased storage revenue due to underutilised yard capacity. The logistics sector faces ongoing challenges, with global logistics provider DHL predicting continued ocean freight capacity shortages until the Golden Week and heightened air cargo demand during the peak season. Despite these issues, TASCO remains a top pick due to its anticipated improvement in freight forwarding, volume recovery, and benefits from tax incentives.

Source: RHB
Title: Sector Earnings Beat Priced In; D/G To NEUTRAL