Investment Highlights

• We maintain our BUY call, forecasts and fair value (FV) of RM5.07 based on 23x FY22F EPS. This is in line with its average historical forward PE with a 3% premium to reflect a 4-star ESG rating as appraised by us (Exhibit 4).

• Westports’ 1HFY21 core net profit of RM365.4mil (excluding one-off items, particularly, a lumpy insurance recovery) came in within expectations at 50% and 51% of our full-year forecast and full-year consensus estimates respectively.

• In 1HFY21, Westports' container throughput volume increased by 11% YoY driven by: (1) an 11% YoY growth in transshipment throughput volume (from low base); and (2) a 9% YoY increase in gateway throughput (driven largely by the strong export of healthcare/hygiene-related and consumer products).

• Its core net profit grew by a stronger 17% YoY thanks to a similar surge in conventional cargoes handled, higher incomes from terminal handling charges and value-added services (arising from high demand for container storage and reefer services), as well as lower finance costs (following the repayment of a RM100mil sukuk in FY20, as well as another RM100mil in 1HFY21).

• Westports reiterated its guidance for a zero-to-mid singledigit growth in its container throughput volume for fullyear FY21F (compared with our forecasts of 2% in FY21F, followed by a 5% growth in FY22F). Westports remains cautious on 2HFY21F due to the uncertainties arising from the supply chain disruptions fuelled by the pandemic. Already, it saw a single-digit decline in container throughput volume in July 2021.

• It has felt the pinch with its container yard being filled to the brink since end-July 2021. It is now storing some containers in its conventional yard. This has adversely impacted its efficiency. This pile-up of containers has been caused by: (1) the reintroduction of movement restrictions in Malaysia on rising Covid-19 infections; and (2) the ripple effect from the port congestion in Bangladesh and Vietnam.

• Westports is appealing to the authority for certain leeway to enable more containers to leave the port. It is advising the shipping liners to avoid Bangladesh/Vietnam-bound transshipment cargoes for now.

• Meanwhile, only minimal progression was made during 2QFY21 with regards to 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. The land use conversion and negotiation with the government on the concession terms are still in progress.

• Over the immediate term, the company will continue to boost its current capacity via its recently completed CT9 Container Yard Zone Z (which has increased the total ground slots by 9% to 51,123 and reefer plugs by 20% to 3,532). It also plans to add an additional 19-acre container yard at CT8 by 4QFY21 amidst the current high utilization at the yard. Apart from that, it has placed orders for 21 new RTG cranes for the new container yard while two replacement quay cranes delivery are expected to be delayed slightly to 1QFY22 vs. the end of this year as guided previously (to replace the cranes damaged in a mishap in end-2019).

• We believe the throughput of seaports, Westports included, will continue to grow in 2021 as global trade recovery gains further momentum, backed by the reopening of economies, businesses and borders.

• 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 - 2 Aug 2021