PETALING JAYA: The impact from the Covid-19 pandemic on the transportation & logistics sector is no mere dent but, rather, destruction of varying degrees to different segments, according to AmInvestment Bank Research (AmResearch).
“It has resulted in a steep contraction in port throughput, a total collapse in demand for air travel and disruption to logistics services, particularly international mails and parcels,” it said in a report.
As such, the research house has revised its call on the sector to ‘underweight’ from ‘neutral’ previously.
In regard to ports, AmResearch said the pandemic has affected both supply and demand. Global consumption and investment has been hurt, resulting in lower shipping volume and container throughput.
On the supply side, manufacturers have been operating under suboptimal conditions due to the affected supply chain.
It projected container throughput to contract by 15% at Westports Holdings Bhd and 10% at ports of MMC Corp Bhd in FY2020, consistent with the steep swing in global GDP growth and a 10% contraction in demand for global container shipping in 2020, and a deteriorating world PMI outlook.
“We are more inclined to be in the ‘u-shaped recovery camp’ as far as seaport container throughput is concerned. We only expect container throughput to recover to the pre-Covid-19 level in 2022,” it said.
For air travel, the research house expects passenger volume for AirAsia Group Bhd to shrink by 35% year on year (yoy) in FY20, followed by a 25% rebound in FY21 should a containment and vaccine scenario occur.
AmResearch maintained its view that AirAsia’s key strategy of aggressively growing its top line has been thwarted by the collapse and the expected long and winding recovery road of the air travel market.
For the overall segment, it expected a “u-shaped recovery” in demand, as passengers may not jump back even if countries gradually restrictions on air travel.
On the demand side, AmResearch highlighted multiple surveys that indicated about 60% passengers are ready to travel again in the next six months, assuming there is no increase in fares.
The supply side faces a crunch in terms of route limitations and load factor cap that inevitably translates into higher fares.
According to a research by the International Air Transport Association, with a cap on the load factor, airlines will have to raise fares as much as 54% to remain profitable, which could make it difficult for low-cost carriers to survive as their passengers are highly price-sensitive.
Meanwhile, it believes the parcel delivery segment is a winner in this situation, due to change in shopping habits to online channels, which translates into rising volume of parcels handled by delivery companies.
Based on research data by Commerce.Asia, the value of merchandise sold via e-commerce in Malaysia surged 149% yoy in Q1’20 amid the pandemic, which translates into rising volumes of parcels handled by parcel delivery companies such Pos Malaysia Bhd and GD Express Carrier Bhd.
However, since the sector is very crowded with 116 players, cut-throat competition has resulted in a severe squeeze in margins.
The research house also pointed out that Pos Malaysia has suspended its international mail and parcel services to most of its destinations for more than four weeks due to the cancellation of flights and airport closures. This has also hurt its international segment, logistic segment and aviation segment.
“Again, we are more inclined to expect only a gradual recovery in these business units as their customers may not have survived the current downturn, and even if they do, they could have scaled down their operations permanently.”
It projects Pos Malaysia’s mail volume to drop by 35% in FY20 and expects the decline in commercial mail volume to accelerate further.
On the whole, AmResearch’s top pick for the sector is MMC Corp with a fair value of RM1.13.
A 10% contraction in demand for global container shipping in 2020 is expected. – REUTERSPIX
source https://www.thesundaily.my/business/covid-19-hammers-transport-logistics-sector-JK2408856
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