Investment Highlights

• We maintain BUY on Westports Holdings (Westports) with a lower fair value (FV) of RM4.76/share (from RM5.16/share previously) based on 22x FY23F PE which is in line with its average historical 3-year forward PE. We also ascribe a 3% premium to reflect its 4-star ESG rating.

• We lower our forecast by 4% for FY22F and 8% for FY23F to reflect lower container throughput due to supply chain disruptions arising from the lockdown in Shanghai and the Ukraine-Russia war.

• Westports’ core net profit of RM154mil in 1QFY22 was within expectations, accounting for 24% of our FY22F earnings and 22% of consensus estimates.

• Westports’ container throughput volume in 1QFY22 fell by 10% from 1QFY21 mainly due to a 16% contraction in transhipment throughput volume.

• Despite weaker volume, Westports posted higher operating revenue (+4%) YoY in 1QFY22 due to higher value-added service with container storage. Nevertheless, Westports’ PBT fell 9% YoY in 1QFY22 due to higher cost arising from increased client engagement and IT outsourcing cost. Net income also shrank by 27% due to the impact from the prosperity tax.

• Westports remains cautious on FY22F outlook due to uncertainties arising from supply chain disruptions led by stringent lockdown measures in Shanghai and the UkraineRussia war. Already, it has seen container throughput volume in April 2022 trending similar to that of 1QFY22. We expect further contraction in container volume in 2QFY22 before recovering in 2HFY22.

• Westports faces the risk of worsening supply chain disruptions caused by: (i) extended lockdown measures in China; and/or (ii) escalation/prolonged Ukraine-Russia war.

• Nevertheless, looking beyond the 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 goods) throughput for ports.

• There have been significant relocations of the manufacturing base by MNCs out of China to the region due to rising labour and land costs, exacerbated by the US-China trade war. Westports has charted a long-term expansion plan to capitalise on these, i.e. Westports 2.0, which is expected to make headway by the end of the year.

Source: AmInvest Research - 27 Apr 2022