KUALA LUMPUR (Dec 6): RHB Investment Bank Research has upgraded the transportation sector to “overweight”, and said of the five companies under its coverage that had reported results, three came in line, while two fell below estimates.

In a sector update on Wednesday, the research house said the sector upgrade is underpinned by positive macroeconomic and sectorial indicators, namely emerging signs of a recovery in China, further pickup in tourism activities, and stronger momentum in trade activities.

RHB IB said Westports Holdings Bhd’s core earnings for the third quarter ended Sept 30, 2023 (3QFY2023) were within house expectations, remaining relatively stable quarter-on-quarter (q-o-q), but reflecting a 30% year-on-year (y-o-y) improvement.

Meanwhile, it said that Malaysia Airports Holdings Bhd (MAHB) is regaining momentum in both its aeronautical and non-aeronautical segments.

It said the stronger y-o-y performance was not a surprise, given the promising growth in both passenger traffic and recovery rates.

However, it said that earnings contracted 11% q-o-q, due to the provision for doubtful debt for MYAirline, higher depreciation, and increased user fees, in tandem with the increase in passenger traffic.

“Its retail segment revenue also increased 2.6 times y-o-y, attributed to an improved passenger mix, higher retail spending per ticket of RM304 (versus 2QFY2023: RM290), and higher royalties,” the research house said.

RHB IB said the confluence of reduced freight rates and subdued demand continued to erode margins of the freight-forwarding business.

It said the sluggish quarterly performance was in tandem with the weak trade date printed, as well as softer global economic and trading activities.

“For logistics players under RHB IB’s coverage, FM Global Logistics Holdings Bhd’s results for the first quarter ended Sept 30, 2023 were in line, but recorded a 21.6% y-o-y drop, while Tasco Bhd’s earnings for the second quarter ended Sept 30, 2023 were below expectations, both due to softer freight-forwarding business volumes and slower-than-expected warehouse activities.

“Nevertheless, we expect Tasco to record a much better performance for the second half ending March 30, 2024, from maiden contributions of new warehouses, which should fetch wider margins compared to its current rented warehouse,” RHB IB said.

“Our sector upgrade is justified, based on the positive macroeconomic and sectoral indicators.

“RHB Economics expects trade momentum to strengthen beyond the fourth quarter of 2023, supported by the resilience of US and regional economies, a global technology cycle rebound, and early signs of a recovery in China. Note that US/Asean/China constitute about 11%/28%/13% of Malaysia’s total exports,” RHB IB said.