KUALA LUMPUR: Ports and logistics sector is seeing gradual earnings recovery in the second half (2H) of 2021, according to Kenanga Research.
This is supported by Covid-19 vaccinations rollouts, normalisation of domestic and global economic activities, as well as pent-up demand effect in general.
Kenanga Research, however, has retained a "neutral" call on the sectors given the lack of near-term catalysts.
Its analyst Wan Mustaqim Wan Ab Aziz said Westports Holdings Bhd had begun experiencing a recovery in throughput volumes starting in 2H of 2021.
"The majority of ships that call at Westports facilities are from the intra-Asia routes which recently saw easing in lockdowns and recovery in trade activities," he said in a research report today.
Wan Mustaqim said Westports was on track with its expansion plans to cater for future trade volume growth.
"We reiterate our view that the expansion project is a longer-term prospect, with full completion only by 2040.
"The approved new container terminal expansion project is currently pending the public-private partnership unit from Prime Minister's Department, Transport Ministry and concession agreement negotiation with the government," he said.
Kenanga Research said the new container terminals were expected to nearly double capacity to 27 million twenty-foot equivalent units' (TEUs) from 14 million TEUs spread over 20 years.
It added that the total capital expenditure for Westports II (CT10-17) amounted to about RM10 billion.
"With anticipated full completion only by 2040, we view this investment as a very long-term play for the group, thus ruling out any earnings accretive development over the next few years," said Wan Mustaqim.
He said the global supply chain was adjusting to a combination of factors, such as higher consumer demand for containerised goods in Western economies, easing in lockdowns and a global supply chain adjustment adhering to Covid-19 measures.
"All in, we keep our market perform call for Westports with a target price of RM4.20."
Meanwhile, he said Pos Malaysia Bhd's losses had expanded as reported in its recent quarterly results following the decrease in mail (-20 per cent) and parcel volumes handled especially from contract customers affected by another lockdown, which had since gradually reopened from August 13, 2021.
On the bright side, he said the impact was cushioned by stronger revenue in logistics segment which returned to profit from freight management business (especially from freight forwarding) and automotive business (largely from the local automotive production volume and commencement of a new warehouse).
Additionally, the recovery in the group's aviation division with increased contribution from e-commerce warehousing and cargo and ground handling businesses with better cost management.
However, he said Pos Malaysia was expected to take a longer route to profitability in a challenging environment capping its postal services segment's profitability.
"It continues to operate in a competitive environment pressured by price and cost challenges, further hampered by loss of revenue from ground handling and in-flight catering with international borders still closed but reprieved by the domestic high parcel volume from stronger e-commerce and online markets and warehousing income."
Wan Mustaqim said Pos Malaysia would likely take a longer route to profitability in a challenging environment.
"Pos Malaysia's inability to close down post offices, coupled with its unionised workforce could well mean profitability at its postal services segment is capped.
"The courier business will continue to operate in a competitive environment pressured by price and cost challenges. The group is continuing with its efforts to manage cost with forecasted yearly RM24 million costs saving."
He said the parcel volume would continue to be elevated under the "new normal environment" especially with the introduction of PAKEJ programme, which is expected to drive more courier volume, and further driven by online campaigns, offsetting the reduction in footfall into post offices.
"However, its aviation division is expected to continue incurring losses due to loss of revenue from ground handling and in-flight catering pursuant, as international borders remained mostly closed.
"We maintain a lower target price of RM0.72 from RM0.80 based on unchanged 10 times FY22 earnings per share as we cut FY22E net profit by 9.0 per cent to further discount the transaction volume (mail and courier)."