BMI View : Over the short term, we anticipate Malaysia ' s main ports will see a varied performance, alternating between large double-digit annual growth in tonnage throughput (29.60% at the Port of Kuantan in 2015) and an 11.42% contraction at the country ' s largest port and gateway to Kuala Lumpur, Port Klang.
Port Klang has suffered in recent times from increasing congestion and is in dire need of upgrade work to raise the standard of facilities to match others in the region. With that in mind, it is welcome news that the Malaysian government has earmarked some MYR300M to upgrade last-mile connectivity at Port Klang. According to Ruben Emir Gnanalingam, CEO at Westport, the road networks leading to both ports in Port Klang have been badly in need of upgrades for the last eight years. With road traffic eased on the way to and from the port, greater ease of transporting cargo should boost the port's output going forward.
The 11th Malaysia Plan (11MP), which outlines various infrastructure development projects and is aimed at improving public transport facilities, regional connectivity and energy security, reinforces our positive outlook for the country's construction sector and, by extension, also offers upside risk to the country's shipping outlook. The 11MP builds on progress made under the 10th Malaysia Plan (10MP), which saw developments in various aspects of infrastructure. Between 2010 and 2015, the country enjoyed a compound annual growth rate of 3.70% in port cargo volumne in mn FWT terms and 4.20% in terms of port container volumne in mn twenty-foot equivalent units (TEUs).
Headline Industry Data
The real value of Malaysia's total trade will rise by 3.95% in 2015, up on the 2.96% rate estimated for 2014.
Total cargo volume handled at Port Klang will contract by 11.42% to 192.47mn tonnes in 2015, while volume at the port of Tanjung Pelepas will rise by 4.79% to 128.33mn tonnes.
2015 box traffic at Port Klang is projected to rise by 16.60% to reach 12.76mn TEUs, while at the port of Tanjung Pelepas a gain of 9.80% to 9.36mn TEUs is expected.
Key Industry Trends
Evergreen Marine Launches Southeast Asian Shipping Route - Taiwan-based container shipper Evergreen Marine Corporation stated on May 8 that it is launching a new shipping service to Vietnam, Singapore and Malaysia in a bid to take advantage of the ASEAN region's solid economy. According to the company, two 1,164TEU vessels will alternately ply once a week on the new route from May 10 onwards. The vessels will set out from the Vietnamese city of Haiphong and travel to Ho Chi Minh City, Malaysia's Port Klang, Singapore and Port of Tanjung Pelepas in Malaysia, before returning back to Haiphong in a 14-day trip. The new route is the fourth service to be launched by the company in the Southeast Asian market in the last six months.
Construction Opportunities Bright Beyond GKL/KV Region - We also highlight that the ambitious plans to develop the Malaysia Vision Valley (MVV) project will also provide opportunities for construction across different sectors, including residential, non-residential and transport. The MVV aims to ease congestion in the Klang Valley by developing the region west of Negri Sembilan, covering Nilai, Seremban and Port Dickson with an estimated land area of 108,000ha. The integrated development will be divided into five clusters, and is expected to have a gross development value of MYR640bn (USD175.4bn) over 30 years, which amounts to MYR21.3bn (USD5.8bn) per year.
China To Build Rail, Ports With Malaysia Under MSR - The Chinese government will undertake a series of projects in cooperation with Malaysia after the introduction of the Maritime Silk Road (MSR) initiative, according to Liu Jinsong, Deputy Director-general of the Department of International Economic Affairs of the Ministry of Foreign Affairs in China. 'Following the initiative, there will be cooperative projects such as railway, industrial parks and plenty of ports to be established between Malaysia and China,' said Liu.
Risks To Outlook
The impact of Chinese economic weakness on Malaysia's export sector has been reflected in data from the first three months of the year, with exports only growing by 2.3% y-o-y in March, registering a slight recovery (versus a contraction of 9.7% in February). Meanwhile, this trend was further reflected in overall industrial production, which grew by 6.9% y-o-y in March (compared to the highs of 7.4% registered in December 2014). We expect this weakness to persist, given our bearish outlook on the Chinese economy, and forecast real export growth to come in at 3.7% in 2015, which has negative connotations for the Malaysia shipping industry.
Meanwhile, the complicated nature of GST and the lack of clear guidelines regarding the different forms of the GST applied to different products will lead to increased uncertainty, causing businesses to put off investment decisions, exerting a negative impact on short-term growth. In addition, the input costs of almost all products in the supply chain will rise, narrowing profit margins and creating higher costs for consumers as producers pass on the increased costs. Accordingly, we expect a sequential slowdown over the coming quarters as the pre-GST spending wears off and the price of goods increases.
The fall in oil prices and resulting decline in the Malaysian ringgit will also have an overall slight negative impact on the Malaysian economy. While much of Asia has benefitted from lower oil prices (with Brent having fallen by approximately 42.0% from its June 2014 peak) as the cost of imports falls, Malaysia's position as a net exporter of hydrocarbons has instead led to currency weakness in tandem with lower oil prices.