KUALA LUMPUR (Jan 20): With the ceasefire between Israel and Hamas now in effect, Kenanga Research anticipates improved schedule predictability for port operators like Westports Holdings Bhd (KL:WPRTS), which would lead to positive spillover effects for Malaysian exporters, particularly glove manufacturers. This assessment assumes a subsiding of Red Sea voyage disruptions.
The ceasefire, ratified over the weekend after 15 months of conflict, is expected to gradually ease diversion from the Suez Canal to the Cape of Good Hope as well as reduce port congestion. This normalisation of shipping routes should increase frequency of shipping line calls at ports in the region, including Westports.
"Spillover beneficiaries of better shipment scheduling would be exporters," the research house said in a note on Monday, highlighting glovemakers as an example of those who have experienced delays in shipments due to logistical challenges caused by the Red Sea conflict.
It said the glovemakers it covered had had to endure back-logged orders to the tune of 400 million to 600 million glove pieces over the past three quarters, which delayed revenue recognition.
"For context, we estimate that Top Glove Corp Bhd (KL:TOPGLOV), Hartalega Holdings Bhd (KL:HARTA) and Kossan Rubber Industries Bhd (KL:KOSSAN) combined have circa 130 billion pieces of annual running capacity. Our preferred plays for gloves are Harta (outperform (OP); target price (RM): RM4.35) and Kossan (OP:TP:RM3)," it said.
It also noted that firms in the plastics supply chain have struggled with elevated freight rates, as reflected in their latest quarterly results. "We estimate that freight could be their second largest cost component after resin (raw material cost) at around a 5% mix, generally speaking. As such, lower freight may bring a degree of relief for these firms," it added.
Eyes on tanker rates
For now, Kenanga Research noted that shipping heavyweights like Maersk and Hapag Lloyd remain cautious and have indicated they do not see an immediate return to the Red Sea.
Freight rates, which peaked in the third quarter of 2024, have shown signs of easing. This is reflected in the declining share prices of shipping giants like Maersk and Hapag-Lloyd, suggesting a broader expectation of normalising costs moving forward, it said.
If the ceasefire manages to bring about a stop in the Houthi attacks, it could lead to a dampening of oil tanker rates, said the research house, who is watching for impact on MISC Bhd (KL:MISC). "To this end, however, there are opposing factors which include expectations of a tightening supply from wider sanctions by the US on Russian fleet, which are pressuring rates upwards," it said.
Overall positive but recovery will take time
The easing of tensions will generally be favourable for those impacted by the boycott sentiment due to the conflict, Kenanga Research said. But it cautioned that the recovery would be gradual, as investors monitor the sustainability of the ceasefire, given its three-phase structure.
International brand consumer stocks whose toplines have been pressured due to boycotts related to the conflict, including Nestlé Malaysia Bhd (KL:NESTLE) — whose sales fell 11% year-on-year in the first nine months of 2024 — could be the key beneficiary as tensions ease, said Kenanga. It has an “outperform” call on Nestle, with a target price of RM111.65.
However, its analysts flagged that “the magnitude of recovery also has to take into account shifts by customers to competing brands, and behavioural change that could hinder a return to pre-boycott market levels”.
In addition, it said improved consumer sentiment toward global brands may translate into higher advertising expenditure. This, in turn, could boost media and advertising companies, such as Media Prima Bhd (KL:MEDIA), it added.
Endorsed by Israel’s security cabinet, the ceasefire agreement outlines a three-phase plan starting with a six-week complete cessation of hostilities, followed by a phased withdrawal of Israeli troops, and finally, reconstruction efforts in Gaza.