This has prompted TA Research to downgrade Malaysia’s largest port operator to “hold” from “buy” with a target price of RM4.86 per share.
In a note yesterday, the research house said the intensifying trade war between the US and China and potential new tariffs or tariff hikes on imported goods in the US would further complicate global trade.
Trump has promised more tariffs if re-elected in November including slapping 60% tariffs against Chinese goods and 10% on products from the rest of the world. These are in addition to the tariffs he imposed during his first term as president.
While TA believes Malaysia will benefit from the “China plus One” strategy, it said the relationship between the US and Malaysia post-US presidential election is still uncertain.
China plus One refers to the strategy where investors complement their core China operations with investment in another country to lower costs and diversify risks even as the US and China decouple economically.
“The risk is looming ahead of the US presidential election and the upside is limited now after the recent price rally. As such, we downgrade Westports to ‘hold’ from ‘buy’,” said TA.
At yesterday’s close, Westports was up 1 sen or 0.2% at RM4.58, valuing it at RM15.5 billion. Its shares have risen almost 26% year-to-date.
TA also said the International Monetary Fund recently revised US growth this year to 2.6% from 2.7%, indicating a sluggish economic outlook that “would not bode well for global trade”. The world economy is expected to grow at a “lacklustre” 3.2% in 2024, it added.
A slowing global economy coupled with Trump’s tariffs will see a drop in trade and likely hit the earnings of port operators such as Westports.
Impacted by Red Sea crisis
Earlier this month, Kenanga Research downgraded Westports to “underperform” from “market perform” as the Red Sea crisis in the Middle East continued with no end in sight.
The crisis began last November after the Israel–Hamas conflict erupted, when Yemen’s Houthi militants launched attacks against merchant and naval vessels linked to Israel, the US and UK in support of Hamas.
To avoid the attacks, commercial vessels have been rerouted to sail around the much longer Cape of Good Hope route rather than through the shorter Suez Canal route.
Kenanga said the diversion from the Red Sea continues to weigh down on global trade, especially in the Asia-Europe sector.
“The diversion has resulted in a longer voyage for the Asia-Europe route, reducing the frequency of calls shipping lines can make at Westports’ ports and all other ports in the region,” it added.
Meanwhile, AmInvestment Bank has maintained its “hold” call on Westports with a fair value of RM4.93 from RM4.52 previously.
It said that Westports’ first half (1H FY2024) core net profit of RM408 million was “within its expectation and consensus”.
Net profit for the second quarter ended June 30, 2024 (Q2 FY2024) rose 4.61% to RM203.75 million from RM194.76 million a year earlier. Revenue edged up 1.9% to RM552.99 million from RM542.64 million on an increase in container revenue.
Container throughput for the first half grew by 3% to 5.4 million TEU (twenty-foot equivalent units) versus 5.3 million in 1H FY2023, supported by strong gateway volume (+11% year-on-year).