Investment Highlights

• We upgraded Westports Holdings to BUY from HOLD with a higher fair value (FV) of RM4.03/share (from an earlier RM3.90/share) based on higher earnings estimates and a rolled-forward FY24F PE of 17x, in line with its 3-year average. Our FV also incorporates a 3% premium to reflect an unchanged 4-star ESG rating.

• We have raised Westports’ FY23F-FY25F earnings by 4% /6% /4% due to higher FY23F assumptions for container, conventional and marine throughput by 6%-10%. The 9MFY23 core net profit (CNP) of RM195mil was above expectations, constituting 78% of our earlier FY23F earnings and 79% of consensus, with 4QFY23 bottomline likely to be sustainable sequentially.

• Westports’ 9MFY23 CNP rose 23% YoY to RM578mil from RM470mil mainly due to a 10%-point decline in effective tax rate to 23% from the absence of 2022 prosperity tax provisions, together with marine revenue growth of 24%.

• YoY, 3QFY23 container volume grew by 7% to 2.8mil TEU, while revenue increased by only 4% to RM458mil due to lower value-added services as well as declines in storage and reefer charges from fewer days at the container yard.

• On the flip side, marine segment surprised with a YTD 24% revenue growth due to higher vessel calls. Berthing of ships increased between 10,000TEUs-13,300TEUs, translating to 16% volume growth. Rental also grew 8% YoY with new tenants at the Westports Logistics Centre and liquid bulk operations.

• Meanwhile, 3QFY23 conventional revenue declined 24% YoY to RM33mil from RM43mil due to a 20% decrease in throughput to 2.7mil MT from 3.4mil MT. The setback was due to ingots moving back from conventional to container against the backdrop of normalised ocean freight rates and container availability compared to the pandemic era.

• QoQ, 3QFY23 CNP rose 20% to RM195mil from a 3.5%-point decline in effective tax rate and 6% revenue expansion supported by higher container and marine volume. Unfavourable forex rates were offset by moderated fuel cost and marginally lower diesel consumption. Depreciation cost eased further due to disposal of 7 old quay cranes.

• Looking forward, we are positive on the group’s throughput recovery momentum, premised on rising foreign direct Investments due to multinationals’ China+1 strategy, ii) steady container throughput growth due to incremental recycled paper volume reaching 350,000 TEUs in 3Q23 from 150,000 TEUs in 3Q22, and iii) glass and solar panel manufacturers setting up factories at Pulau Indah, which expanded local boxes to 40% out of total container volume mix from 30% in the previous 2 years.

• We are positive on Westport Holdings’ mid-to-long term outlook, underpinned by: 
  i) Pulau Indah benefiting from supply chain shifts with more distribution and logistics factories being established in the area,
  ii) Stronger growth in intra-Asian trade, partially attributed to rising container volumes across China ports, despite slower-than-expected rebound this year, and
  iii) Westports 2.0 expansion plan to capitalise on the region's growth given the port’s strategic position in the East-West ASEAN trade routes.

• The stock is currently trading at an attractive FY24F PE of 15x, 14% below its 3-year average of 17x while offering compelling dividend yields of 5%.

Source: AmInvest Research - 10 Nov 2023