Overview of Malaysia’s Ports & Logistics Sector

The report delves into the performance and outlook of Malaysia’s logistics and port operators following the recent Gaza ceasefire. The focus centers on two key companies: Westports Holdings Berhad and Swift Haulage Berhad. The analysis spans market dynamics, freight rates, operational disruptions, investment recommendations, and risk factors.

Westports Holdings Berhad: Positioned for Growth

Recommendation: BUY

Target Price (TP): MYR5.38

Current Price: MYR4.38

Upside Potential: 27%

Key Highlights

• The recommendation to “BUY” Westports is underpinned by its strong position in intra-Asia trade, which remains resilient. This is bolstered by rising foreign direct investments (FDIs) and domestic direct investments (DDIs) in Malaysia.
• Westports is projected to benefit from higher tariffs and gateway container volume growth. The company’s profitability is expected to improve with an assumed 41% gateway container mix in FY25E, compared to 45% in 3Q24.
• A tariff hike is anticipated in FY27E, which could further enhance revenue streams.
• Potential upside includes a stronger-than-expected gateway-to-transshipment volume mix and an earlier-than-expected tariff revision.

Market Dynamics

Freight rates have been under pressure following the Gaza ceasefire, driven by the reopening of the Suez Canal route. The report notes that shorter sailing distances will normalize back to pre-crisis levels, releasing previously absorbed capacity. This, combined with record deliveries of new vessels, is expected to lead to market overcapacity, necessitating the removal of approximately 1.8 million TEUs just to maintain status quo.

Minimal Disruptions at Local Ports

Although there may be temporary delays in global supply chains as shipping liners reschedule routes, the impact on Westports is expected to be minimal. The implementation of new shipping alliances on February 1 could contribute to short-term congestion, but better planning should mitigate severe disruptions. Westports is well-positioned to manage these challenges, unlike the severe rerouting issues faced in late 2023 and early 2024.

Risks and Opportunities

• Risks: Abrupt changes in trading routes due to geopolitical risks or reshuffles in shipping alliances could reduce container volumes and earnings. A significant global economic slowdown also poses a risk.
• Opportunities: A higher-than-expected gateway volume mix could boost margins. Additionally, accelerated FDIs, driven by geopolitical dynamics, offer further growth potential.

Swift Haulage Berhad: Stable but Limited Upside

Recommendation: HOLD

Target Price (TP): MYR0.49

Current Price: MYR0.45

Upside Potential: 10%

Key Highlights

• The “HOLD” recommendation for Swift Haulage reflects its stable but limited upside potential. The company’s operations remained unaffected by last year’s port congestion, showcasing its resilience.
• Swift Haulage’s performance is anchored on steady haulier demand and minimal disruptions from the evolving global supply chain dynamics.
• With a projected PE ratio of 10.9x in FY24E and 10.3x in FY25E, the valuation appears fair but lacks significant growth catalysts.
• Dividend yields remain stable at 3.2% for FY24E and 3.4% for FY25E, offering moderate returns to investors.

Market Implications

The report notes that Swift Haulage is less exposed to risks from global freight rate fluctuations and shipping alliances compared to port operators. This provides a cushion against potential disruptions, making it a relatively safer but less dynamic investment option.

Sector Outlook: Freight Rate Challenges and Resilience

Freight rates are expected to remain under pressure due to the normalization of sailing distances via the Suez Canal. This will release previously absorbed capacity, exacerbated by record vessel deliveries. Despite this, local port and logistics players like Westports and Swift Haulage are positioned to navigate these challenges effectively.

Conclusion

Maybank Investment Bank Berhad recommends a “BUY” for Westports, citing strong growth potential driven by intra-Asia trade, tariff hikes, and gateway volume increases. Meanwhile, Swift Haulage is rated as a “HOLD” due to its stable operations but limited upside potential. Investors should consider these dynamics when evaluating opportunities in Malaysia’s ports and logistics sector.