2012-10-22 02:31:53 - Malaysia Shipping Report Q4 2012 - a new market research report on companiesandmarkets.com

Subdued GDP Limits Port Growth Our Malaysia ports and shipping outlook remains fundamentally unchanged on the last quarter, although we continue to monitor a range of downside risks. On economic growth, we still take a below-consensus position, stressing the dampening effects of lower demand from the country´s key export markets such as Singapore, the US and China. We also note structural changes within the country are shifting the drivers of growth from outward-facing exports to inward consumer demand and from manufacturing to services.

BMI predicts GDP growth at 3.3%, down from 5.1% last year. The value of foreign trade (imports + exports) will grow by 3.4% in real terms, down from 4.5% in 2011. That said, we expect the country´s major

 

 

ports (Port Klang and Port Tanjung Pelepas) to continue to outperform for a variety of reasons.

These include: greater reliance on intra-Asian and local trade, which is holding up better than global longhaul trade routes; the impact of fairly aggressive capacity expansion programmes; and relative success in attracting and retaining the custom of major shipping lines.

Headline Industry Data

- The real value of Malaysia´s total trade will rise by a predicted 3.4% in 2012, a slowdown on the estimated 4.5% expansion experienced in 2011.

- Total cargo volume handled at Port Klang will rise by 7.7% to 209.109mn tonnes in 2012, while volume at the Port of Tanjung Pelepas will rise by a slightly higher 8.2% to 141.008mn tonnes.

- Box traffic at Port Klang is projected to rise 6.3% to 10.205mn twenty-foot equivalent units (TEUs), while at the Port of Tanjung Pelepas a gain of 6.1% to 7.959mn TEUs is expected.

Key Industry Trends

Penang Set To Be Operated By Seaport Terminals

Under a privatisation deal, Malaysia´s third-largest container facility, the Port of Penang, will be operated by Seaport Terminal, itself 30% owned by the international shipping company Maersk Line. Seaport already operates the number two box facility at the Port of Tanjung Pelepas (PTP), where it has a record of boosting volumes by attracting major shipping lines. On the whole, BMI believes the deal will therefore be positive for Penang, although we note concerns among some local analysts that Penang might be kept purely as a feeder port for PTP. BMI highlights, however, that a government will always set stipulations during a port´s privatisation, with the facility awarded with caveats attached. These normally centre on the successful bidder agreeing to achieve a certain level of throughput and investing a certain amount over a period of time.

Trucking Dispute Resolved At Port Klang

Operations at Port Klang returned to normal in May after the Association of Malaysian Hauliers signed a memorandum of understanding (MoU) with container depot operators to end its industrial action. Truck drivers had protested against high charges and delays at depots and refused to carry drayage to and from container depots outside the port. The operators have agreed to improve service times in order to cut waiting times to less than one hour. As an existing transhipment hub with a developed port sector, Malaysia´s ports are ranked third after Hong Kong and Singapore in the Asian region. Port Klang is well positioned to play a major role on this developing trade route.

Hint Of Recovery At MISC Berhad

After notching up significant losses and announcing a decision to move out of container shipping, the state-owned MISC Berhad may be over the worst, analysts have suggested. OSK Research said the company was expected to write back US$174mn into its results after disposing of its liner business. The research firm said the shipping conglomerate could also limit the division´s operation losses to US$50mn to US$60mn over the following one to two quarters, in contrast to its annual losses of US$200mn in the past five years.

´After recording massive provisions totalling US$546.3mn in the past two quarters on exiting its liner business, we estimate that MISC may see a write-back, which is half of what it had earlier provided for. This amount was raised from the sale of 10 container vessels, with the remaining six older vessels likely to be scrapped´ the research company said. OSK Research also echoed MISC´s management stand that the group´s exit from the liner business will drive profits going forward, as this segment has been racking up losses totalling US$1.04 billion (operation losses before tax) over the past 20 quarters.

Key Risks to Outlook

Compared to our last report, we have juggled the downside risk factors that we believe need to be monitored as we track Malaysian port and shipping activity levels. We now put political risk in the run-up to general elections in the forefront of our calculations. As we have explained previously, BMI does not think that fundamental challenges to the Malaysian economic model are on the cards. Rather our concern is that government pump-priming in advance of the elections could heighten business community worries over the fiscal situation. Also, depending on how the politics plays out and on issues of timing, the natural ´pause´ in investment programmes that takes place during elections in most countries could become unduly prolonged.

Our second downside risk to watch is the danger of a sharp correction in equity and real estate prices. In recent years, the influx of foreign capital into speculative investments such as real estate and equities, have driven up prices of these assets to new historic highs. Valuations on the Kuala Lumpur Composite Index (KLCI) have become increasingly unrealistic by historical standards, and we caution that a sharp decline in equity prices could easily trigger a panic among foreign investors, potentially resulting in large and destabilising capital outflows. Our view that property prices in Malaysia are at risk of significant declines due to an oversupply of units in H212, further compounds the risk of capital flight as foreign investors make up a large portion of the speculative investment property market. Any crisis of confidence of this type could hit investment plans in the ports and shipping sector, as well as reducing economic growth and trade levels which are key to freight demand.The price of this market report covers 4 quarterly reports on this sector. This quarterly report will be downloadable instantly as a PDF document, with the 3 remaining reports delivered at regular intervals throughout the year.

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