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Seaport Segment Poised to Grow Further In 2021 As Global Trade Recovery Gains Momentum

AmInvestment Bank Research maintained its "overweight" stance on the transportation and logistics sector as the research firm believes the seaport segment is poised to grow further in 2021 as global trade recovery gains further momentum, backed by the reopening of economies, businesses and borders, as well as the roll-out of huge stimulus packages that will continue to support consumption and investment.

However, the research firm said in a note that seaport operators will face challenges or benefit from port congestion worldwide over the immediate term.

It advocated for investors to stay invested in the seaport segment via Westports Holdings Bhd with a "buy" call and fair value (FV) of RM5.07 as well as MMC Corp Bhd ("buy"; FV RM1.68).

AmInvestment said there would be a slight negative impact on Westports. The research firm cut its net profit forecast for the financial year ending Dec 31, 2021 (FY21) for the group by 2%, assuming that its throughput grow at 2% versus 3% previously.

Being a transhipment port operator, Westport is not spared the loss of operational efficiency from the congestion. However, we believe it is more prepared this time around, thanks to experience gained during the similar situation at the height of the Covid-19 pandemic last year.

During the time, Westports created additional yard space and imposed stricter storage charges to help ease the situation at the port. Priority berthing was given to ships with more containers to be loaded than discharged to reduce the number of containers in the storage yard.

Meanwhile, the Port Klang Authority also withdrew the additional free storage period and the exemption of Special Services Request (SSR) charges on empty export containers, as well as expedited customs and quarantine and inspection clearance by increasing manpower and set up special lanes to facilitate the release of reefer containers,” it said.

As for MMC Corp, AmInvestment raised its FY21 net profit forecast by 7% for the company as the research firm assumes its throughput to grow at 6% versus 3% previously.

The transhipment seaports under MMC Corp’s stable, i.e. the Port of Tanjung Pelepas (PTP) and Northport, are largely secondary in the geographical area they serve and hence less congested, [and] stand to gain from the diversion of port calls by shipping lines from busier primary ports amid a prolonged congestion, resulting in increase volumes and market share gains,” said the research firm.

On a separate note, the research firm believes Westports and PTP are poised to gain market share from the Port of Singapore (PSA) following the PSA’s plans to raise its port charges in two phases from Jan 1, 2022, which will widen further gaps in port charges between ports in Malaysia and Singapore.

While we maintain our assumptions for FY23, we believe there could be upside to both Westports and PTP due to this latest development.

Looking beyond FY21, we believe the port sector in the region (Malaysia included) will remain to be well positioned to benefit from shifting sourcing patterns accelerated by the pandemic, arising from relocations of manufacturing bases by multinational companies out of China to the region,” it added.

Source: The Edge Markets

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