Investment Highlights

• We maintain HOLD on Westports with an unchanged fair value (FV) of RM3.90/share based on FY23F PE of 18x, in line with its 5-year average. Our FV also incorporates a 3% premium to reflect an unchanged 4-star ESG rating.

• Westport’s 1QFY23 core net profit (CNP) of RM185mil was within expectations, accounting for 25% of our forecast and consensus estimates. As such, we keep our earnings estimates unchanged.

• Although operational revenue slipped by 2% YoY to RM504mil in 1QFY23, CNP grew 20% YoY to RM185mil in the absence of the one-off 2022 prosperity tax. Meanwhile, operational cost increased marginally by 3% YoY to RM209mil due to higher manpower (+6% YoY) and electricity costs (+20% YoY).

• Container throughput grew 6% YoY in 1QFY23 on the back of increases in both transhipment and gateway volumes. However, container revenue fell 4% YoY dragged by lower storage charges as dwell time of transhipment boxes reduced amidst easing congestion.

• Meanwhile, despite a 9% YoY growth in volumes, conventional revenue fell 5% YoY in 1QFY23 from lower throughput of break bulk cargo, which commands higher charges. On a positive note, conventional throughput improved, supported by non-bunker liquid bulk (LPG and CPO/chemicals) and dry bulk (food-related) cargo.

• On a QoQ basis, CNP fell 12% to RM185mil in 1QFY23, mainly due to lower operational revenue (-2% QoQ) and absence of investment tax allowance. Operational revenue dropped as conventional (-11% QoQ) and container throughput (-1% QoQ) declined.

• Westports has maintained its guidance for a single-digit growth in FY23F throughput volume. Although throughput volume grew 5% YoY in April, the group is cautious as uncertainties in the global economy could impede a recovery in trade volume.

• Nonetheless, we are positive on the long-term prospects for the port sector in Malaysia. The bright outlook is expected to be underpinned by global trade and investments in the manufacturing sector, which will support inbound and outbound throughput growth. There have been significant manufacturing base relocations by MNCs out from China into the region due to rising labour and land costs, exacerbated by the US-China trade war.

• To capitalise on these, Westports has charted Westports 2.0, a mega port expansion project which is expected to double the port’s container handling capacity to 28 mil TEUs. We anticipate negotiations for the expansion to make headway in 2H2023.

• The stock is currently trading at a fair 16.3x FY23F PE, 11% below its 5-year average of 18x.

Source: AmInvest Research - 8 May 2023