TA Securities stays 'overweight' on transportation sector, AirAsia top pick

KUALA LUMPUR (Dec 30): TA Securities Holdings Bhd has maintained its "overweight" call on the transportation sector and said AirAsia Group Bhd is expected to benefit from both stable crude oil price and strong ringgit movement next year, which have significant impact on the company's operating costs and profit margins.

In a note today, the research house said crude oil price is expected to be less volatile and ringgit firmer in 2020 as compared to 2019.

"We expect the average crude oil price to be US$70 per barrel in 2020, same as 2019.

"The ringgit (MYR) is expected to be at average USD/MYR 4.10 in 2020, stronger than the average of estimated USD/MYR 4.15 for 2019, taking into consideration the interest rate outlook in Malaysia and US, prolonged US-China trade war, and US presidential election next year," it said.

It said another company that would benefit from stable oil price is Westports Holdings Bhd, as the company is exposed to the vagary of oil price, which accounts for 15% of cost of production.

"All in, we believe the stable oil price and strong ringgit movement for 2020 will enhance companies' operation agility, in terms of product pricing and cost management. This is crucial in the backdrop against the prolonged US-China trade war," it added.

TA Securities said it maintains its financial year 2020 (FY20) sector earnings growth of 43%, stemming mainly from AirAsia on the back of yield normalisation with Malaysia AirAsia's revenue/available seat kilometre (ASK) to rebound 7% to 13.7 sen after a contraction of estimated 14.4% this year due to intense price competition, and increase in capacity (+6.6%) and stable load factor (86.0%) for Malaysian Automotive Association operations.

Furthermore, the research house said it anticipates AirAsia's total passenger carried to grow 6.6% to 35.6 million, spurred by high air travel demand during Visit Malaysia Year 2020 and the opening of Genting's outdoor theme park.

"Load factor is expected to stay high at 86%. Likewise, the passenger movements of Malaysia Airports Holdings Bhd (MAHB)'s Malaysian airports are expected to grow 5.8% to 110.4 million.

"This is within Malaysian Aviation Commission's forecast of a growth of between 5% and 6% year-on-year (y-o-y)," it said.

Moreover, TA Securities also said it expects a couple of corporate actions to materialise in 2020 — the disposal of Malaysia Airlines to a foreigner, and the privatisation exercise from Tiong Nam Logistics Holdings Bhd or initial public offering of its REIT-able assets.

It said that an outright sale of Malaysia Airlines to foreign firms is a big boon to AirAsia, and will create a level playing field for the aviation industry when Malaysia Airlines turns to become a non-government-linked company.

"Not only that, we also believe the new owner, local or foreign, would likely adopt a more rational pricing strategy to regain market share and stop future losses. This will also benefit AirAsia, which has been suffering from cut-throat price competition in 2019," it added.

Meanwhile, the possible privatisation exercise by Tiong Nam is based on an analysis of the company's current financial position, future cash requirement, and current share price and public spread.

The research house said its top pick is AirAsia ("buy", target price [TP]: RM2.01). It also said it maintains MAHB as "buy" (TP: RM8.57) although Regulatory Asset Base implementation could be at risk.

TA Securities said Westports remains as a "sell" as global trade uncertainty would eventually hit the company.

"We like Perak Transit Bhd ("buy", TP: 44 sen) for defensive play and Tiong Nam ("buy", TP: 76 sen) for it being a possible privatisation target," it said.