Investment Highlights

• We cut our FY20–21F net profit forecasts by 6% and 8%, reduce our FV by 10% to RM4.31 (vs. RM4.81) based on 22x FY20F EPS (from 23x previously). Our target PE for Westports is at a 5% discount to its average historical PE to factor in a higher risk premium given the impact of the coronavirus outbreak on the global economy. We maintain our BUY call.

• Westports’ FY19 results met our forecast and consensus estimates.

• The seaport operator’s container volume handled grew 14% YoY to 10.9mil TEUs driven by: (1) sustained growth in the intra-Asia trade lane; (2) additional services from the Ocean Alliance; and (3) strong growth in the gateway container throughput.

• Westports’ FY19 core net profit grew by a stronger 22% YoY thanks largely to the implementation of container tariff hike with effect from 1 March 2019, coupled with improvement in efficiency as reflected in smaller fuel cost increase despite significant growth in container volume (due to reduced fuel intensity and lower fuel price).

• Westports is cautious on the outlook for container throughput in FY20F given the impact of the coronavirus outbreak on the global economy. For now, it has abandoned its forecast of a “small single-digit growth”. As it stands now, it believes the disruptions (factory shutdown, slowdown in consumer demand, ports backlog due to the lack of truck drivers and stevedores) by the coronavirus outbreak on the supply chain could be larger than previous epidemics. We therefore cut our assumption to 2% (from 5% previously). For FY21–22F, we assume container throughput growth rates to maintain at 5% respectively.

• On the Westports 2.0 expansion plan – comprising eight new terminals, CT10 to CT17, which will double its container handling capacity from 14mil TEUs to 28mil TEUs – Westports has proposed to acquire the second piece of land (Marina Land), measuring 362 acres for RM394mil cash (or RM25 psf). We believe the proposed purchase price value is fair. According to iProperty.com.my, the average land price for that region ranges from RM29 to RM80 psf.

• The acquisition will increase Westports’ net debt and gearing of RM704mil and 0.28x as at 31 Dec 2019 to RM1,098mil and 0.43x respectively, which are still manageable.

• We continue to like Westports for its defensive earnings, coupled with the fact that it has charted its long-term growth and expansion plan. We believe that the seaport operator is a beneficiary of the trade diversion from the US-China trade war. There have been significant relocations of the manufacturing bases by multi-national companies out of China to the region due to the rising labour and land costs, which help to generate tremendous inbound and outbound throughput for the port. Maintain BUY.

Source: AmInvest Research - 10 Feb 2020