Investment Highlights

• We maintain BUY on Westports Holdings (Westports) with a lower fair value (FV) of RM4.35/share (from RM4.76/share previously) based on FY23F PE of 22x which is in line with its average historical 3-year PE. We also ascribe a 3% premium to reflect its 4-star ESG rating.

• While maintaining our FY22F core net profit (CNP), we cut our CNP for FY23F–24F by 10% each to reflect slower throughput recovery. We expect softer trade volumes amid inflationary and recessionary fears in FY23F.

• Westports’ 1HFY22 CNP of RM318mil came within expectations, accounting for 51% of our FY22F earnings and 49% of consensus estimates. It also declared a first interim DPS of 6.9 sen/share, which was in line with our forecast.

• In 1HFY22, container throughput volume fell 8% YoY mainly due to a 12% fall in transhipment throughput volume. Meanwhile, container throughput volume grew 4% QoQ in 2QFY22, thanks to a 9% improvement in transhipment throughput (vs. a low base in 1QFY22). The increase in transhipment volume helped offset a 3% QoQ contraction in gateway throughput in 2QFY22.

• Despite weaker volume YoY, Westport’s operational revenue rose 4% to RM893mil in 1HFY22 on higher value-added service (VAS) in the container storage segment. Nevertheless, CNP fell 13% YoY to RM317.9mil in 1HFY22 dragged by higher fuel cost (+84%) and the one-off prosperity tax. Revenue dipped 1% QoQ to RM511mil in 2QFY22 on lower VAS from yard congestion. CNP rose 7% QoQ to RM162.3mil in 2QFY22 as overprovision of taxes were reversed.

• Westports remains cautious on the outlook for FY22F due to the ongoing disruption in supply chain and macroeconomic headwinds. The group said that throughput volumes were flattish in the first half of July vs. the same period in June. We expect throughput volumes to be soft for the rest of FY22F.

• Nevertheless over the long term, the outlook for the port sector in the region is still resilient. This is underpinned by global trade and investments in the manufacturing sector that are expected to support growth in inbound and outbound throughput volumes.

• 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.

• The stock now trades at a compelling FY23F PE of 18x, vs 3- year average of 22x.

Source: AmInvest Research - 29 Jul 2022