KUALA LUMPUR: Kenanga Investment Bank said it has downgraded Westports Holdings Bhd to underperform following a run-up in its share price despite the Red Sea crisis weighing on the frequency of ship calls at its port.
Westports was trading at RM4.59 a share earlier, giving it a market capitalisation of RM15.6 billion.
Kenanga maintained its target price of RM3.80 for Westports.
In its note yesterday, the research unit said the shipping diversion from Suez Canal to the Cape of Good Hope has resulted in a longer voyage for the Asia-Europe route, reducing the frequency of calls shipping lines could make at Westports.
The Asia-Europe route contributes 30 per cent of global container volume.
The World Trade Organisation (WTO) in April 2024 cut its projection for global merchandise trade volume growth in 2024 to 2.6 per cent (from 3.3 per cent).
Lower water levels in the Panama Canal due to an extreme drought disrupting the movement of shipping liners were cited as one reason for the cut.
Kenanga also said that stricter regulations on carbon emissions may pose new challenges to global trade, particularly, one from the United Nations' International Maritime Organization (IMO) and another from the European Union (EU).
While the exact implications of the regulation of IMO and EU's Carbon Border Adjustment Mechanism (CBAM) on the seaport and logistics sectors remain unclear, especially for CBAM which is still pending finalisation, the volume of containers heading to the EU will certainly be affected, especially those originating from China, which is a major exporter of iron, steel, and aluminium to the EU.
About 18 per cent of container throughput under Asia-Europe trade is headed to the EU.
Kenanga said under the new IMO rules, effective January 2023, all ships must report their carbon intensity and will be rated accordingly.
The ships must record a 2 per cent annual improvement in their carbon intensity from 2023 through 2030 or face being removed from service.
Meanwhile, the EU's CBAM policy could disrupt the exports of certain commodities (iron and steel, cement, aluminium, fertiliser, electricity, and hydrogen) to the EU. During the transition period between Oct 2023 and Dec 2025, EU importers must report embedded emissions in goods imported on a quarterly every quarter, as well as any carbon price paid to a third country. When the CBAM takes full effect starting in 2026, importers will need to buy carbon credits to offset the emissions generated.