TA bullish on 3PL in light of Red Sea risks

KUALA LUMPUR: TA Securities Research has reaffirmed its bullish outlook on third-party logistics (3PL), which will play an important role in strengthening overall supply-chain management due to the proliferation of trade conflicts and geopolitical tensions.

“The 3PL operators enable various warehousing processes, procurement and distribution of raw material, a unification between freight and customs and expedite shipment of goods.

“Importantly, the additional cost of having the 3PL service is insignificant if compared to the cost of operation disruptions, which is unbearable,” it said.

Factoring in its optimism over the long-term prospects of 3PL as far as global risk management is concerned, TA Securities ascribed the peak sector price-earnings multiple of 16x in valuing the 3PL industry.

As a sector pick, It favours CJ Century Logistics Holdings Bhd as the only 3PL company under its coverage with a valuation of 50 sen a share.

TA Securities, which has a “neutral” rating on the transport sector, also noted a potential increase in global shipping rates following the disruption to shipping lines in the Red Sea.

It said in its review the impact would depend on the situation of the Israel-Hamas war.

Globally, shares of major shipping firms including Maersk, Hapag-Lloyd, Cosco and Evergreen have been buoyed by the spike in shipping costs, resulting from the higher cost of operations.

According to TA Securities, share prices reached the inflection points in mid-December, then soared to the peak with average gain of 36% in early-Jan and closed with average gain of 28% last Friday.

There could also be spillover benefits to the local logistics and warehousing operators if the war continues for an extended period as Malaysian manufacturers are expected to increase storage of raw materials to avoid production disruption.

“The positive implications have already been reflected in the recent share price performance of logistics and port counters, in our opinion,” said TA Securities.

In its latest update, the research firm raised Westports Holdings Bhd’s valuation higher to RM4.20 a share from RM4.03 previously after revising its risk-free rate assumption lower to 4% from 4.5% previously.