There is a ring on the door. The delivery person is holding up a package waiting for you to sign it. This delilvery thing we often take for granted wouldn't be possible without the transport & logistics companies hard at work. Moreover, with China re-opening its borders and Chinese factories returning to normal operations, the logistics network will pick up again all over the world again. That includes operations in Malaysia given its high trade involvement with China. After all, China is Malaysia's largest trading partner for more than a decade. Hence, the time may be ripe to ride (sounds rhyme ah~) on these 4 Malaysian transport & logistics...

#1 MISC Berhad

MISC Berhad (MB) operates in the shipping services business primarily, providing liquefied natural gas, petroleum tanker, chemical tanker, marine repair, engineering, construction, haulage, trucking, and warehousing services. Its divisions under the group include Eaglestar, MMS, Alam, MHB, and aef-tankers. MB's businesses are well diversified with petroleum & product shipping encompassing about 30.0% of total revenue, followed by offshore business (28.3%), gas asset & solutions (27.0%), and marine & heavy engineering (13.2%). While MB definitely did suffer during the pandemic, revenue have rebounded at strong growth rates of 34.3% and 36.5% in the second quarter of 2022 (2Q 2022) and 3Q 2022 respectively. Meanwhile, it managed to turn a profit of RM1.7 billion in 2021 from a loss of RM170 million in 2020. In the market currently, most analysts have an OVERWEIGHT call for MB, with a target price of RM7.79. This implies an upside of 7.6% currently. The last time MB traded at above the RM7.80 level was in April 2022. MB could be worth taking a good look at for the following reasons:
  1. Dominant position in the transport & logistics sector in Malaysia. Market capitalisation of RM32.3 billion, which is almost 3 times the size of the next biggest company of Westports Holdings (RM12.2 billion).
  2. Well-diversified business structure with not one business segment exceeding 30% of the company's revenue.
  3. Major clients of Petronas, Petrobas, and Shell.
In terms of financial valuation, MB is currently trading at a price-to-book ratio of 0.83 times, lower than the 1.0 times mark. Its dividend yield stands at a respectable 4.6%. With a dividend yield of 4.6% and a share price upside of 7.6%, investors stand to gain about 12.2% in total returns.

#2 Malaysia Airports

Malaysia Airports Berhad (MAB) operates and manages airports in Malaysia so that you can travel hassle-free when you are going on holiday. It has about 39 airports in Malaysia, and one airport in Turkey. MAB's main business is centered around its KLIA airport in Sepang with 77.4% of total passenger movements, followed by Sarawak (4.7%) and Sabah (4.4%). In line with the pandemic in 2020 and 2021, MAB's financial performance had been poor with 2021's revenue at only about 32.1% of 2019's revenue. However, there are already signs that it is on its way to recovery, with the trailing 1 year revenue (Sep 2021 to Sep 2022) amounting to RM2.7 billion (about 51.3% of 2019's revenue). Due to the potential return of Chinese tourists, most analysts are quite positive on MAB's recovery and currently has an OVERWEIGHT call. They are looking at a target price of RM7.48, which implies an upside of 5.8%. Here are the following considerations that you should have for MAB:
  1. It is the monopoly of airport services in Malaysia.
  2. Return of Chinese tourists and imports could boost MAHB's revenue back to its pre-pandemic levels.
  3. Establishment of Airport Development Fund (ADF) to fund new airport developments.
MAB is currently trading at a price-to-book ratio of 1.67 times, in line with the sector average of 1.61 times. You can expect MAB to give about 1-2% dividend yield, translating into a total potential return of 6.8% to 7.8% (upside capital gain of 5.8%).

#3 Bintulu Ports

Bintulu Ports (BP) operates and manages ports primarily in Bintulu, Sarawak. BP has three main companies namely Bintulu Port Sdn Bhd and Samalaju Industrial Port Sdn Bhd that mainly provide port services such as towage, piloting, mooring, cargo handling and storage, and supply base services, while Biport Bulkers Sdn Bhd is involved in the bulking installation services. BP's role in Sarawak is mainly concentrated in the oil & gas and palm oil industry as the Sarawak is one of the biggest producers of natural gas and palm oil in Malaysia. BP has been quite recession-proof during the pandemic. Revenue only declined by 1.3% in 2020 and subsequently rebounded by 2.7%. It's 1 year trailing revenue (September 2021 to September 2022) of RM786 million has now exceeded 2019's revenue of RM725.1 million. Notwithstanding, its trailing profits of RM388.3 million is almost 4 times bigger than 2019's profit of RM93.3 million. It's no wonder then that BP has an OUTPERFORM investment call from analysts in the market. Its target price is at RM6.02 with an implied upside of 14.7%. BP has some of these factors going for it:
  1. Main export outlet for both natural gas and palm oil in Malaysia to other countries.
  2. Ability to withstand recessions with a beta of 0.39. This means that it is not sensitive to the overall market movements.
  3. Biggest transport & logistics company in Sarawak.
BP is currently trading at a price-to-earnings ratio of 6.3 times, much lower than the historical average of 17.9 times (2017 to 2021), and has a dividend yield of 2% to 5%. This translates to a potential return of 16.7% to 19.7%, including the potential share price upside of 14.7%.

#4 Perak Transit

Perak Transit (PT) is primarily involved in the business of public transportation terminals in Perak and also public bus services across Malaysia. Other than that, it also operates petrol stations in Ipoh, Lahat and Kuala Kangsar in Perak, Malaysia. Its terminal operations still account for the bulk of its revenue at 54.9%, followed by petrol stations (15.6%) and public transportation (15.4%) in 2021. PT is also an example of a business that is quite resilient to recessions. Its revenue declined by 4.1% in 2020 during the pandemic, but amazingly its profits actually grew by 5.2% even with a decline in revenue. It's trailing 1 year revenue (September 2021 to September 2022) is now at RM161 million compared to 2019's RM124.5 million. Analysts are now piling into PT with an investment call of OUTPERFORM and a target price of RM1.56. This translates to a whopping 41.8% in upside for PT. PT could be worth a good look at for the following reasons:
  1. High profit margin business at around 32% to 38%.
  2. Resilient to recessions as profit still grew even during the pandemic.
  3. Established market position in Perak, Malaysia.
Currently, PT is trading at a price-to-earnings ratio of 12.9 times, higher than the historical average of 10.1 times. With a dividend yield of 2.5% currently, investors could be getting a potential total return of 44.3% if everything pans out nicely for PT.

Conclusion

The re-opening of the world esp. China bodes well for Malaysia's transportation and logistics companies as things start to get busy and 'move around' again. But before you take advantage of this recovery trend, do remember your research in this particular industry.

About the author James Yeo

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