KUALA LUMPUR (Oct 24): MIDF Research has maintained its positive stance on the transportation sector and said port and logistics players are well-positioned to benefit from the optimistic trade outlook and the recent ratification of RCEP and CPTPP agreements.

In a thematic report on Tuesday, the research house said this forms the foundation for its recent upgrade of the sector from “neutral” to “positive”.

“Currently, we favour the logistics companies under our coverage over port operators due to its fewer foreseeable downside risks.

“This preference is supported by the sector’s appealing valuation, currently at a substantial discount of 40%-50% below historical norms.

“Additionally, worries concerning targeted subsidies have been alleviated, as logistics companies will retain their access to subsidised diesel, as announced in Budget 2024,” it said.

Nevertheless, MIDF said this is not expected to pose a significant concern, thanks to the inclusion of fuel clauses in their contracts with customers.

Looking ahead, MIDF said it foresees a brighter outlook for port players primarily focused on transshipment operations, such as Westports Holdings Bhd (“buy”, TP: RM3.90).

It said this outlook aligns with the World Trade Organization’s projection of a +3.3% annual growth in global merchandise trade for CY2024, with potential for further growth if inflation subsides rapidly.

“In the case of Westports, the reopening of China was not expected to significantly influence the recovery of its transshipment business, with the main challenge being associated with demand rather than production.

“With the expectation that major economies will refrain from further tightening of monetary policies, there exists the potential for an improvement in consumption patterns and a subsequent increase in interregional container movements.

“Additionally, the rebound in port throughput is expected to receive additional support from gateway operations, with Malaysia’s exports and imports expected to grow in CY2024, rebounding from declines in CY2023,” it said.

The research house said Westports dominates the Port Klang market, holding an 80% market share, with 70% focused on transshipment (involving connecting vessels) and the remaining 30% dedicated to gateway operations (handling imports and exports).