KUALA LUMPUR (June 12): Slowing global trade, combined with weaker consumer confidence and spending, is expected not to augur well for seaport operators.

Kenanga Research analyst Wan Mustaqim Wan Ab Aziz, in a note on Monday (June 12), said that additionally stricter regulations on carbon emissions — particularly from the United Nations’ International Maritime Organization (IMO) and from the European Union (EU) — may also pose new challenges to global trade.

Wan Mustaqim added that while the exact implications of the regulation of IMO and EU’s Carbon Border Adjustment Mechanism on the seaport and logistics sectors remain unclear, the volume of containers heading to the EU will certainly be affected.

He added these issues are likely to impact port operators such as Westports Holdings Bhd.

On the flipside, his top picks are Bintulu Port Holdings Bhd and Swift Haulage Bhd.

Bintulu Port's stable operation in the handling of liquefied natural gas cargoes, a potential tariff hike at Bintulu Port as well as the long-term growth potential of Samalaju Industrial Port’s hinterland in Samalaju, Sarawak, driven by the growing investment in heavy industries will offset the headwinds in the industry.

Meanwhile, Swift Haulage’s leading position in the Malaysian haulage business — commanding close to 10% market share, its pre-tax profit margin of 10% compared to industry average of 4% — and the tremendous growth potential of its warehousing business, riding on the booming domestic e-commerce made the stock his top pick.

Wan Mustaqim saw a bright spot in the local logistics sector as the domestic market is not directly exposed to external headwinds, and benefits from the boom in e-commerce.

According to him, industry experts project the local e-commerce gross merchandise volume to grow at a compounded annual growth rate of 11% from 2022 to 2027, while its size could reach RM1.65 trillion by 2025 from RM1 trillion currently.

Wan Mustaqim said the surge in e-commerce will spur demand for distribution hubs and warehouses such as just-in-time delivery, reshoring/nearshoring to bring manufacturers closer to end-customers.

“[It also enables] efficient automation systems including interconnectivity with the customer system, and warehouse decentralisation to reduce transportation costs and de-risk the supply chain.

“There is also strong demand for cold-storage warehouses on the back of the proliferation of online grocery start-ups,” he added.

The seaport and logistics sector saw a weakened earnings delivery in the first quarter of financial year 2023 against three months ago with only Westports meeting expectations, while Bintulu Port, Pos Malaysia Bhd, and Swift Haulage missed the firm’s forecasts.