• Still NEUTRAL, new DCF-derived TP MYR3.65 from MYR3.78, 4% upside. Results met expectations, with a 6% growth in TEU for transhipment and gateway volumes (Port Klang: 2%). While we raise our container volume growth assumptions, FY23F earnings are cut by 6% to factor in higher opex ahead. Elsewhere, the award of the concession for Westports 2’s expansion is still pending approval from the authorities. We also think Westport could possibly be admitted into the FBM KLCI in the upcoming semi-annual review.

• Results in line. 1Q23 core earnings of MYR181.8m (-11.7% QoQ, +19.7% YoY), were within our and consensus’ FY23F at 23% and 25%. Overall, 1Q23 revenue dipped slightly by 2% QoQ and 3% YoY, due to lower contribution from container and conventional segment. Paired with a 3% YoY surge in operating cost for the quarter, gross profit shrunk by 6%. Despite a 6% YoY increase in volumes due to a low base effect, container revenue fell by 4% YoY, attributable to lower storage charges and shorter dwell time of transhipment boxes as port congestion has eased while container shipping schedule reliability improves.

• 1Q23 container volume. Westport handled a total 2.55m TEUs (-1% QoQ; +6% YoY), where transhipment and gateway constituted c.60% and 40% of the total volume – making it the second highest ever quarterly gateway volume, thanks to the resilient domestic economy, Malaysia’s competitive exports and foreign direct investments or FDIs. Conventional volume growth of 9% YoY to 2.90m MT was supported by non-bunker liquid bulk (chemicals) and dry bulk (food-related) cargoes. Geographical wise, intra-Asia (c.63% container volume) still post a 3% YoY growth (Figure 2) as the group berthed more regional and relatively smaller vessels that service this region.

• Outlook. Despite keeping to our single-digit throughput growth assumption, we revise our throughput volume growth (Figure 7) upwards as we take a slightly bullish stance on the trade flows within the Asia-Pacific region. Elsewhere, regional and global ports (ex-China) are seeing a slowdown or negative throughput volume growth. We expect to see a more prominent impact trade flow from China’s reopening in 2H23 as it is Malaysia as one of its largest trading partners and key contributor to global port growth. Our economist has reiterated the core view of a recovery in 2H23, with Malaysia’s GDP forecast growth of 5% YoY, as the country’s economy shows signs of bottoming out.

• Valuation. Post housekeeping, our FY23F earnings are slashed by 6% after factoring in a higher opex. As such, we arrive at our new MYR3.65 TP, which incorporates a 0% ESG premium/discount, based on its new ESG score of 3.0 (from 3.1). Our TP implies a 16.9x FY23F P/E, slightly below its 5-year mean of 19.7x and regional peers of 17.2x – which we think is fair given slower volume growth in TEU and higher cost environment. Key risks: Lower-than-expected TEU volume, and higher-than-expected operating costs.

• ESG framework update. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a 50% weightage to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research for more details.

Source: RHB Research - 8 May 2023