Transportation & Logistic - Neutral - 28 March 2012

Stock Name: AIRASIA
Company Name: AIRASIA BHD

Research House: KENANGA

Price Call: BUY

Target Price: 4.06

Stock Name: MAS
Company Name: MALAYSIAN AIRLINE SYSTEM BHD

Research House: KENANGA

Price Call: SELL

Target Price: 1.06

Stock Name: MISC
Company Name: MISC BHD

Research House: KENANGA

Price Call: HOLD

Target Price: 5.47

Stock Name: BIPORT
Company Name: BINTULU PORT HOLDINGS BHD

Research House: KENANGA

Price Call: HOLD

Target Price: 7.00

We are maintaining our Neutral rating on the Transportationsector while maintaining Bintulu Port as our top pick for a defensive stanceduring the current uncertain global economic outlook. We believe that BintuluPort would be able to maintain at least a 37.5 sen dividend  (6% dividend yield) throughout the constructionof Samalaju Port. With the  potentialearnings diversification from Samalaju Port, Bintulu Port will be the  port of call for industrial products supportedby steady LNG vessels volume.  Meanwhile,for airlines, the headwinds from high oil prices and low loads will remainstrong in 2Q12. On top of that, with the lingering controversy on the sharesswap deal between MAS (UP, TP: RM1.06) and AirAsia (OP, TP: RM4.06), this willbring greater uncertainties in the near term for the deal and especially forMAS' business direction. For the shipping sector, we are still Neutral on thesector but we have upgraded our call on MISC from an Underperform to a MarketPerform with a Target Price of RM5.47 on account of lower downside risks to thestock in the near-term. 

Mixed bag of FY11results.  Thus far, most of thetransportation and logistics companies under our coverage have had their FY11earnings coming in within our expectations except for MISC and MAS. We aremaintaining our UNDERPERFORM rating on MISC and MAS as we believe bothcompanies' earnings will continue to be subdued throughout the year. Both companieshave reported higher than expected losses due mainly to their high operating costand lower revenue. 

Low season forairlines in 2Q12. We are not bullish on the airline sector at this junctureas 2Q is generally the low season for airlines especially AirAsia. For MAS, wedo not expect it to turn profitable in FY12 as we believe that there are stillrooms for further 'kitchen sinking' exercise on its aircrafts early redelivery.This will eventually increase its operating cost. We expect more news flow onMAS-AirAsia shares swap and the delivery of MAS's new A380s but this will notlikely 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 aircraftsi.e. A380s given that its cash balance is at a critical level of RM550m. 

Bigger picture forBintulu Port. For a longer term investment stance, we are positive on BintuluPort due to its potential earnings upside from Samalaju Port once it is completedin about 3 years' time. Even on a shorter term outlook, its consistent dividendpayout will be attractive to investors looking to weather the economicuncertainties. As for its dividends, we believe that the potential CAPEX forSamalaju  Port will not affect BintuluPort's dividend payout as 30% to 40% of the CAPEX (RM500m) will be financed bythe government through a government grant. Based on our analysis, Bintulu Portwill be able to pay at least a 37.5sen dividend throughout the constructionperiod of about 3 years. 

Shipping tounderperform still. With the uncertainties in the US and global economy, weexpect the shipping sector to be gloomy in the near term. Rates for dry andliquid bulk are expected to be lacklustre and temporary hiccups are expected asthe 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 businesssegments and remove the earnings of the liner business. However, given  that the price of the stock has retraced to levelseven lower than our revised TP (offering a  current  6.1% upside  to  the TP),  we  are upgrading our call on MISC to a MarketPerform (from an Underperform).

We are maintainingour 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 thekey areas of concern for the sector for 2Q12 are (1) high oil prices, (2) aseasonally low season and (3)  uncertainand unsustainable global economic recovery in the near term. 

Source: Kenanga