Investment Highlights

• We adjust our FY22 forecasts down by 11% to factor in a higher tax rate as result from the one-off “Cukai Makmur” proposed by the government in Budget 2022. However, we tweak our fair value (FV) up slightly to RM5.16 based on 22x FY23F EPS as we roll forward our valuation base year (from RM5.07 based on 23x FY22F EPS previously). This is in line with Westports’ average historical forward PE with a 3% premium to reflect a 4-star ESG rating as appraised by us (Exhibit 4). We maintain our BUY recommendation.
   
• Westports’ 9MFY21 core net profit of RM585.3mil (excluding one-off items, particularly, a lumpy insurance recovery) came in within our full-year forecasts but above the consensus’ full-year estimates at 75% and 81% respectively.

• In 9MFY21, Westports' container throughput volume increased by 3% YoY, thanks to a 5% YoY growth in transshipment throughput volume (from a low base in 1HFY21). This is partly offset by a 1% YoY contraction in gateway throughput, hampered by the domestic lockdown imposed in 3Q as an effort to curb the resurgence of Covid-19 cases locally.

• Its core net profit grew by 5% YoY thanks to the higher conventional cargoes handled (mainly from the strong break bulk growth with higher ingot price), higher incomes from 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 9MFY21).

• Westports reiterated its guidance for a single-digit growth in its container throughput volume for full-year FY21F (compared with our forecasts of 2% in FY21F, followed by a 5% growth in FY22F). Westports remained cautious on 4QFY21F’s outlook due to the uncertainties arising from the supply chain disruptions led by the pandemic. Already, it has seen container throughput volume in Oct 2021 trending similarly as 3QFY21.

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

• Meanwhile, only minimal progression was made during 3QFY21 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. It has now obtained approval for Marina Land’s’ conversion for industrial use, with the conversion premium payment completed. Meanwhile, its negotiation with the government on the concession terms is 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 as well as 6 new quay cranes (to be delivered by 2022), apart from the two replacement quay cranes that are expected to be delivered in 1QFY22 (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 and the one-off “Cukai Makmur” short-term impact., the outlook for the port sector in the region (Malaysia included) is resilient. This is 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 - 1 Nov 2021