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22 Jul 2020 / 22:33 H.

Transport & logistics segments on varying paths to recovery

PETALING JAYA: The transportation & logistics sector is recovering with the reopening of the local and global economy at a varied rate and path for the different segments within the sector, observed AmInvestment Bank Research (AmResearch).

It elaborated that the recovery of global trade augurs well for the port segment, while the air travel industry faces a bumpy path given the uncertainties surrounding the opening of borders and recapitalisation plans of airlines.

“While the logistics segment is technically a beneficiary of the pandemic (particularly, parcel delivery on the back of the booming online shopping), it is weighed down by a crowded playing field with cut-throat competition,” the research house said in a report.

In regard to ports, it projects container throughput at Westports and the ports of MMC Corp to bounce back by 10% and 8% respectively in 2021F, and should return to the prepandemic levels in 2022F.

For the longer term, it stated that the outlook for ports for Malaysia and the region remains resilient due to investment in manufacturing that generates tremendous inbound and outbound throughput for ports.

For air travel, research house acknowledged that there have been green shoots of recovery in the industry from the easing of travel restrictions globally, but the flights were still at only 40% (as at end-June 2020) from the levels registered in the same period last year.

“We project passenger volume for AirAsia to rebound by 35% in 2021F, after shrinking by 50% in 2020F, which is in line with the Malaysian Aviation Commission’s (Mavcom) projection of 49–50% contraction in Malaysia’s air traffic passengers in 2020,” it said.

AmResearch elaborated that the recovery for the segment will be bumpy due to uncertainties relating to opening of borders, compounded by airlines’ struggle to plan flight schedules as passengers only book 0-3 days before departure on average from a previous average of over 20 days previously.

The research house added that there is an urgent need for airlines to recapitalise their balance sheets given the massive losses they have suffered amidst a collapse in air travel since the pandemic.

“We maintain our view that AirAsia’s key strategy of aggressively growing its top line (to mitigate the high cost structure arising from the recent aircraft sale-and-leaseback scheme) has been thwarted by the collapse of the air travel market, and the expected long and winding recovery road of the industry,” said AmResearch.

On the other hand, it believes the parcel delivery segment is a winner of the current situation as the pandemic and the resultant social distancing accelerate the change in shopping habits of consumers from physical to online channels.

On the whole, AmResearch maintained its underweight call on the transportation & logistics sector, with MMC Corp as its top pick.

“We see MMC Corporation as a recovery play given the expected improvement in its port throughput over the next 6-12 months as economies reopen,” it explained.

For the longer term, the outlook for ports in Malaysia and the region remains resilient.

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