• Still NEUTRAL and MYR3.65 TP (DCF), 5% upside and c.5% yield. 1H23 results were within expectations as container volumes booked overall growth of 8.4% in TEUs (transhipment: +2% YoY, gateway: +18% YoY). We keep our earnings and assumptions unchanged as results were in line. Elsewhere, concession awards for Westports 2’s expansion are still pending approvals. A first interim dividend of 8.19 sen was declared, which translates to a 2.3% yield.

• 1H23 met expectations. 2Q23 core net profit of MYR194.8m (+7.1% QoQ, +20.2% YoY) brought 1H23 earnings to MYR378.4m (+20.5% YoY), ie within our and Streets’ full-year estimates at 51% and 50%. Despite an 8% YoY increase in volumes, container revenue only rose 2.5% YoY to MYR452m, attributable to lower contributions from value added services amid lower storage units and shorter reefer days at the container yard due to easing port congestion. While electricity costs surged due to the imbalance cost pass- through or ICPT hike from 3.7 sen to 20 sen/kWh, overall opex was down 6.3% YoY on lower fuel costs (-39% YoY) paired with efficiency gains, which resulted in a drop in total diesel consumption.

• 2Q23 throughput. Westports handled 2.7m TEUs (+5.9% QoQ, +8.4% YoY), where transhipment and gateway constituted c.60% and 40% of total volumes – making it the highest ever in terms of quarterly gateway volumes. This brought 1H23 container volumes to 5.25m TEUs or 50.2% of our full-year FY23 container assumption of 10.45m. Conventional volumes came in at 2.53m tonnes (-12.5% QoQ, -9.6% YoY) due to market competition and the containerising of break bulk cargo. Geographically, intra-Asia trades (c.63% of container volumes) remained resilient (+7.5% YoY).

• Outlook. While container growth has exceeded Westport’s previous low single- digit guidance, this was mainly due to the higher-than-expected empties handled – out of the 2.7m TEU total, 29% were empties being channelled back to China (FY22: 25%). Despite China’s recent disappointing economic data, management believes the repositioning of empties indicates early signs of revival in the East Asian nation’s manufacturing activities. China’s leadership has also pledged to recover the nation’s economy in its recent politburo meeting, though no details on a stimulus package has been announced. Nevertheless, with most of the empties already channelled back to China, we believe 2H23 container volumes will see a less empties ratio while growth should be flattish YoY due to the high-base effect.

• Valuation. As results and throughput assumptions were in line, we keep our earnings estimates unchanged. Our MYR3.65 TP incorporates a 0% ESG premium/discount based on the 3.0 ESG score and implies 16.9x FY23F P/E, ie slightly below the 17.3x historical mean and in line with regional peers’ 16.9x. We deem this fair, given Westports’ conservative volume growth and lower net profit growth vs peers.

Source: RHB Research - 28 Jul 2023