KUALA LUMPUR: RHB Research foresees downside risks for the transportation sector's future, citing concerns such as a sustained deceleration in global economic growth that may obstruct trade flows.
The investment bank also highlighted the possibility of a slower-than-anticipated rebound in passenger and trade volumes, coupled with a further decline in freight rates.
Consequently, RHB Research has opted to uphold its "overweight" recommendation for the sector, identifying Malaysia Airports Holdings Bhd (MAHB) and Tasco Bhd as its preferred choices.
"MAHB remains a top pick due to the salient recovery of international tourism at its Malaysia and Turkey airports, driven by China's outbound travel and the resumption of airline capacities," it said in a note.
According to RHB Research, MAHB is awaiting regulatory updates to tie up loose ends.
It added that the key elements of the new operating agreement (OA), encompassing development capex, expansion planning, and benchmark passenger service charge (PSC) rates, remain undecided.
Meanwhile, the Malaysian Aviation Commission's (Mavcom) third and final consultation papers are still pending for the aeronautical charges over 2024–2026 for regulatory period 1 (RP1) and the long-term regulatory framework for RP2.
As per news reports, the delay in finalising these frameworks may stem from disagreements over standardising the PSC between KLIA Terminals 1 and 2.
Both frameworks are slated for conclusion by February 2024, according to MAHB.
However, RHB Research said that it anticipates regulatory overhangs being resolved in the first quarter of 2024 (1Q24).
According to the firm, Tasco continues to be preferred in the logistics industry due to its diverse clientele, business lines that support its revenue stream, and integrated logistics services (ILS) tax benefits, which act as a safeguard against industry headwinds.
Furthermore, as noted by RHB, the Suez Canal attack that precipitated the Red Sea crisis first caused seven out of the top 10 shipping companies in the world to halt their use of the Red Sea, which in turn drove up certain freight rates.
Nonetheless, it said that since the pandemic, shipping lines have expanded their capacity, making the supply chain more resilient to disruptions.
"While some have resumed operations, certain container ship players remain cautious, choosing the longer route around the southern tip of Africa. This has led to a surge in ocean freight costs, with liner companies introducing surcharges to avoid the Suez Canal.
"We expect this spike in rates to be temporary, as not all container ships are diverting from the Suez Canal," it added.
Nevertheless, RHB Research highlighted that there is growing evidence of improved trade activities from China's economic growth and that of regional economies, which will be a boon to the transportation sector.
It said the expected surge in demand from China should serve as a contributing factor to the ongoing export recovery in 1Q24 and beyond.