Investment Highlights

• We maintain BUY on Westports Holdings with a higher fair value (FV) of RM4.52/share (v. RM4.28/share previously). Our FV reflects an unchanged rolled-forward FY24F P/E of 18x, at parity to its 5-year average with 3% premium of a 4- star ESG rating.

• We marginally increase our FY24F-FY26F earnings by 2%- 4% to account for a higher gateway container volume growth of 7% vs. 4% previously. Westports made a good start to the year with a 16% YoY gateway volume increase in 1QFY24. The group also achieved the highest ever local box-to-transshipment ratio of 45:55.

• Westports’ 1QFY24 core net profit (CNP) of RM205mil was slightly above our expectations but within street estimates, coming in at 27% of our full-year estimate and 25% of consensus’.

• The upbeat result stemmed from an 8% increase in container revenue, mainly due to a 16% growth in gateway boxes. Management guided that the tariff charge for gateway boxes is RM300/TEU in FY24F, 65% higher than the transshipment rate of RM182/TEU. Contribution from value- added services also increased marginally in 1QFY24 due to tariff revision for reefers in mid-May 2023 with higher volume.

• Additionally, net interest expense declined by 22% YoY to RM8.5mil in 1QFY24 due to RM125mil Sukuk repayment in FY23 and RM50mil in 1QFY24.

• YoY, container volume rose by 5% to 2.67mil TEU in 1QFY24, which cushioned the 4% decline in conventional volume. The fall in conventional volume was due to lower liquid bulk volume of marine bunker, palm oil products and Liquified Petroleum Gas (LPG).

• In terms of cost, Westports notably experienced a 30% YoY increase in other operational costs in 1QFY24. This was attributed to higher cost of handling break bulk cargoes, increased daily charter rate for tugboats/pilot boats and recognition of dredging amortisation cost.

• Moving forward to 2QFY24, we believe that Westports would be able to sustain its container gateway volume due to resilient intra-Asian trade and a competitive port tariff compared to regional peers.

• Key downside risks to our call are:
  
  i) global trade headwinds from longer Red Sea transit disruptions and worsening Panama Canal drought,
  
  ii) high operational cost due to unfavourable forex rates and elevated Brent crude oil price environment, and
  
  iii) potential delays and a lower-than-expected increase in tariffs.

• The stock is currently trading at an attractive FY24F PE of 16x, below its 5-year average of 18x, while offering a compelling dividend yield of 5%.

Source: AmInvest Research - 3 May 2024