We are maintaining our Neutral rating on the Transportation
sector while maintaining Bintulu Port as our top pick for a defensive stance
during the current uncertain global economic outlook. We believe that Bintulu
Port would be able to maintain at least a 37.5 sen dividend (6% dividend yield) throughout the construction
of Samalaju Port. With the potential
earnings diversification from Samalaju Port, Bintulu Port will be the port of call for industrial products supported
by steady LNG vessels volume. Meanwhile,
for airlines, the headwinds from high oil prices and low loads will remain
strong in 2Q12. On top of that, with the lingering controversy on the shares
swap deal between MAS (UP, TP: RM1.06) and AirAsia (OP, TP: RM4.06), this will
bring greater uncertainties in the near term for the deal and especially for
MAS’ business direction. For the shipping sector, we are still Neutral on the
sector but we have upgraded our call on MISC from an Underperform to a Market
Perform with a Target Price of RM5.47 on account of lower downside risks to the
stock in the near-term.
Mixed bag of FY11
results. Thus far, most of the
transportation and logistics companies under our coverage have had their FY11
earnings coming in within our expectations except for MISC and MAS. We are
maintaining our UNDERPERFORM rating on MISC and MAS as we believe both
companies’ earnings will continue to be subdued throughout the year. Both companies
have reported higher than expected losses due mainly to their high operating cost
and lower revenue.
Low season for
airlines in 2Q12. We are not bullish on the airline sector at this juncture
as 2Q is generally the low season for airlines especially AirAsia. For MAS, we
do not expect it to turn profitable in FY12 as we believe that there are still
rooms for further “kitchen sinking” exercise on its aircrafts early redelivery.
This will eventually increase its operating cost. We expect more news flow on
MAS-AirAsia shares swap and the delivery of MAS’s new A380s but this will not
likely help the sentiment on the share price due to the expectation of FY12 losses.
In a nutshell, 2Q12 will be a crucial
period for MAS to secure financing for the deliveries of its aircrafts
i.e. A380s given that its cash balance is at a critical level of RM550m.
Bigger picture for
Bintulu Port. For a longer term investment stance, we are positive on Bintulu
Port due to its potential earnings upside from Samalaju Port once it is completed
in about 3 years’ time. Even on a shorter term outlook, its consistent dividend
payout will be attractive to investors looking to weather the economic
uncertainties. As for its dividends, we believe that the potential CAPEX for
Samalaju Port will not affect Bintulu
Port’s dividend payout as 30% to 40% of the CAPEX (RM500m) will be financed by
the government through a government grant. Based on our analysis, Bintulu Port
will be able to pay at least a 37.5sen dividend throughout the construction
period of about 3 years.
Shipping to
underperform still. With the uncertainties in the US and global economy, we
expect the shipping sector to be gloomy in the near term. Rates for dry and
liquid bulk are expected to be lacklustre and temporary hiccups are expected as
the overcapacity issue for vessels
remains a concern. As such, we have downgraded our TP on MISC to RM5.47
(from RM6.05) as we have fine-tuned our valuation for its business
segments and remove the earnings of the liner business. However, given that the price of the stock has retraced to levels
even lower than our revised TP (offering
a current 6.1%
upside to the
TP), we are upgrading our call on MISC to a Market
Perform (from an Underperform).
We are maintaining
our NEUTRAL recommendation for the sector for 2Q12. Our Top Sell for the sector is MAS (UP, TP:
RM1.06) and our defensive pick is Bintulu Port (MP, TP: RM7.00). Some of the
key areas of concern for the sector for 2Q12 are (1) high oil prices, (2) a
seasonally low season and (3) uncertain
and unsustainable global economic recovery in the near term.
Source: Kenanga
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