Transport Sector

OCBC Research 23 Dec


Transport Sector: Likely bumpy ride ahead – seek defensives

Summary: The uncertain economic outlook ahead continues to weigh down on business confidence, which in turn negatively impacts global travel and trade volume. Weak demand outlook and high current fuel prices raise concerns on both the aviation and shipping sub-sectors and we are UNDERWEIGHT on both these sectors. While the weakness seen in the aviation sector may filter down, we are NEUTRAL on the aviation service providers. The outlook on these service providers is still healthy because air traffic and global aircraft fleet should continue to grow over the longer term. We are OVERWEIGHT the land transportation sub-sector in Singapore because it has no viable large-scale substitute. We prefer ST Engineering [BUY, FV: S$3.01], due to its diversified revenue streams, and SMRT Corp [BUY, FV: S$2.04] for the defensive nature of its business.