We are maintaining our Neutral rating on the Transportation
sector with AirAsia (OUTPERFORM TP: RM4.06) as our top pick for the sector.
Despite softening oil prices (crude oil prices hovering at USD96/barrel), we
expect the 3Q to be typically a stronger season for airlines due to the festive
and school holiday seasons. We expect airlines earnings to be muted despite of
softening crude oil price at the level of USD95 to USD96/barrel. For a more
defensive stock selection, we prefer MAHB (OUTPERFORM, TP: RM6.50) as it is the
beneficiary of growing airlines passenger traffic and its stronger retail
income. We also like Bintulu Port (MARKET PERFORM, TP: RM7.20) as a defensive
play for its decent dividend (5% to 6% yield) supported by its stable recurring
income from LNG vessel’s handling. For the shipping sector, we are still negative
for 2012 as we believe that the recent hikes in charter rates are not
sustainable for the rest of the year. The shipping sector outlook is still
challenging with oversupply issues lingering and against a weak global economic
backdrop especially in Europe. However, we expect MISC’s FY13 earnings to
improve after the disposal of its loss-making asset i.e. its liner business. We
have recently upgraded our recommendation on MISC from an UNDERPERFORM to an
OUTPERFORM with a TP of RM4.44. We
expect some notable news headlines for the sector during the 3Q period like (1)
MAS unveiling its new business plan, (2) updates on the listing of Indonesia
AirAsia and (3) potential earnings upside from softening crude oil prices. The key risks to our recommendations
are (1) a spike-up in jet fuel price above USD130/barrel, (2) worst-than-expected
impact from Suvarnabhumi airport maintenance works and (3) further delays in
TAA and IAA listing.
1Q12 results within
expectations except for MAS. Thus far on average, the companies under our
coverage reported within-expectations earnings in 1Q12 except for MAS. MAS had reported
worse than expected losses due to their high fixed cost structure i.e. in staff
costs. Nonetheless, there was a slight improvement seen in MAS’ cost structure
from its route rationalisation initiative, where its fuel cost was lowered by
1.5% on the back of 9% increase in crude oil price, YoY. As the results of the
route rationalisation, MAS’ capacity (ASK) dropped by 8% YoY. Going forward,
the recovery pace for MAS is likely to remain lackluster in 2012 and we expect
it to stay in the red for FY12.
Weak potential 2Q12
results may dampen 3Q12 peak sentiments.
3Qs are typically strong periods for airlines due to the festive season
and school holidays. We also expect airlines to fetch favorable loads and
better yields due to the softening crude oil prices at around USD96/barrel
currently. However, the positive sentiment will likely be affected by the release
of an expected weak 2Q12 results in August 2012. We opine that investors should
take the opportunity to accumulate shares then via a buy-on-weakness strategy.
The ongoing maintenance works in Suvarnabhumi International Airport, Thailand,
is seen as aggravating the airlines’ seasonally weak 2Q12 earnings.
Shipping still yet to
recover. The recovery period for the
shipping sector is expected to take at least another nine to 12 months due to
the oversupply issue and the weak global
economic outlook. There could be volatility in charter rates in the interim (as
there are months of restocking). However the oversupply in global ship capacity
and the weak global economic backdrop will likely keep rates at an overall
suppressed level.
Bintulu Port
maintains FY12 dividend payout. We
believe that the financing of the Samalaju Port will not shake its current
financial position and hence its dividend payout is likely to remain the same
as the previous financial years at c. 37.5sen (5% to 6% yield). We are maintaining our NEUTRAL
recommendation. Among others, we favour AirAsia as our Top Pick in 3Q12 while
opting for Bintulu Port and MAHB as the defensive picks.
Source: Kenanga
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