Investment Highlights

• We raise our FY21–22F net profit forecasts by 4% and 2% respectively, and tweak our fair value up by 2% to RM4.92 (from RM4.83 previously). We value Westports at 23x its revised FY22F EPS, which is in line with its average historical forward PE. We believe the throughput of seaports, Westports included, to continue to grow in 2021 as global trade recovery gains further momentum, backed by the reopening of economies, businesses and borders. Maintain BUY.

• Westports’ FY20 core net profit of RM667.3mil (excluding RM12.8mil one-off expenses such as written-off PPE and impairment on trade receivables) came in within our forecast and consensus estimates.

• For the year, its container throughput volume declined by 3% YoY. A 7% YoY contraction in transshipment throughput (due to the general slowdown in global trade amidst the pandemic), was cushioned by a 3% YoY increase in gateway throughput (driven largely by the recycled paper processing activities locally, the healthcare/hygiene-related products, polymers related products, etc.).

• Westports reiterated its guidance for a low single-digit growth for its container throughput volume in FY21F, underpinned by the recycled paper processing activities locally, relocation to Malaysia and the expansion of multinational companies’ manufacturing facilities locally, coupled with the recovery in global trade. We are maintaining our container throughput growth assumptions of 3% and 5% for FY21F and FY22F respectively.

• While Westports’ container throughput volume contracted in FY20, its core net profit grew by 4% YoY, driven largely by: (1) a full-year impact of an effective 13% hike in container tariff (from 1 Mar 2019), vs. only a 10-month impact in FY19; (2) a slight change in product mix with an increase in higher-margin gateway cargoes (at the expense of low-margin transshipment cargoes); and (3) higher incomes from value-added services, particularly, reefer and storage services.

• There are slight delays in Westports’ 2.0 expansion plan comprising eight new terminals, CT10 to CT17, which will double its container handling capacity to 28mil TEUs from 14mil TEUs. Westports continues to work on the land use conversion and negotiate with the government on the concession terms. It hopes to conclude the negotiation by mid-2021 (vs. early 2021 guided previously) and commence physical works (i.e. reclamation and dredging) in 2HFY21.

• Meanwhile, Westports is boosting its capacity to 15mil TEUs by end-2023 via its recently completed CT9 Container Yard Zone Z (which increases the total ground slots by 9% to 51,123 and reefer plugs by 20% to 3,532). It has placed orders for 21 new RTG cranes for the new container yard while two replacement quay cranes are expected to be delivered in 1QFY21 (to replace the cranes damaged in a mishap in end-2019). It has earmarked a total capex of RM400mil to RM500mil in FY21F, largely to fund the construction of the new yards and the purchases of the new RTG cranes, trucks, etc.

• Its FY20 dividends translate to a payout ratio of only 60% to conserve cash. It guided for the payout ratio to revert to 75% in FY21F.

• Looking beyond the pandemic, the outlook for the port sector in the region (Malaysia included) is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports. There have been significant relocations of the manufacturing base by multi-national companies out of China to the region due to the rising labour and land costs, exacerbated by the US-China trade war. Westports has charted a long-term expansion plan to capitalise on these.

Source: AmInvest Research - 3 Feb 2021