Investment Highlights

• Mixed results in 4QFY23. Out of the 3 companies under our coverage, Suria Capital results disappointed, Bintulu Port (Biport) was exceeded while Westports came in within expectations. Suria Capital swung into the red in 4QFY23 as the group was affected by lower property earnings, higher amortisation for concession assets and a provision for replacement cost. On the other hand, Bintulu Port exceeded our expectations as LNG demand was healthy in 4QFY23, reflected in a 19% QoQ rise in throughput volume. Also, Westports experienced 4% QoQ increase in container throughput volumes resulting from festive-driven demand and key clients ramping up shipments to fulfill contractual quotas.

• Sector core net profit improved by 10% in 2023. We believe that regional trade flows have been strong, underpinned by the China+1 strategy. We reckon that more foreign investors are setting up factories in Southeast Asia.

• Improved throughput volume at Port Klang. Westports’ container throughput increased 8% to 10.9mil in FY23, supported by higher gateway (+14%) and transshipment (+4) volumes. Intra-Asian trade (+12% YoY) was robust in FY23 thanks to healthy foreign direct investments and festive-driven consumption. Container throughput from other continents also improved as reflected in the 35% increase in Asia-American trade and 66% surge in Asia-Africa. The Asia-American and Asia-African trades made up 12% of Westports’ container throughput in FY23.

• Suria’s port throughput declined. Suria’s cargo segment decreased by 6% in FY23, while container segment dropped by 5%. Cargo throughput at the wharves fell by 13% in FY23 due to a drop in the volume of palm oil and palm oil-related products. According to MPOB, palm oil exports from Lahad Datu slid by 4% in 2023. Lahad Datu accounted for 21% of overall East Malaysia palm oil exports in 2023 .

• Tariff revision remains in the spotlight. We believe that there will be a hike in tariffs for all of the ports under our coverage. Westports has initiated requests for container tariff revisions. Recall that Westports proposed a 50% tariff hike a decade ago but was granted only a 30% tariff increase from the Ministry of Transport (MOT). This was implemented in 2 stages i.e., a 15% increase in 2015 and another 15% hike in 2019. In Sabah, port tariffs have been unchanged in the past 35 years. Although the tariff revision was approved in principle by the State Cabinet in 2020, the implementation will only be decided later. For Bintulu, we expect the tariff revision to take place after Bintulu Port Authority has been handed over to the Sarawak state government. Biport’s general cargo tariffs were last revised in 1983 and container tariffs in 1999.

• The Shanghai Containerised Freight Index (SHSCFI) has eased. The Shanghai Containerised Freight Index (SCFI), which represents spot rates for containers loading in Shanghai has eased 16% from its peak in January. Recall that freight rates spiked in January. The index doubled to 2,240 pts in mid-January from 1,094 pts in mid-December as the tension in the Red Sea caused a shift in global shipping routes. This is positive for Malaysian ports as we believe rates will continue declining in 1H2024 as shippers reroute and reschedule cargo deadlines to cushion impact from Red Sea crisis.

• Westports 2.0 mega port expansion project to boost capacity. The expansion, which was unveiled in Aug 2017, covers the development of 8 new terminals – container terminals (CT) 10 to CT17. These will double Westports’ container-handling capacity to 28mil TEUs from 14mil TEUs . Recall that Westports was granted a 58-year concession to operate the ports until 2028F. Phase 1 land reclamation and dredging will begin next year. The first 2 container terminals CT10 and CT 11 are expected to commence operations in 2H2027 and 2H2029 respectively .

• Discontinuation of the national load centre shipping policy. On 1 March 2024, Minister Anthony Loke announced Port Klang will no longer be promoted as the National Load Centre. Recall that back in 1993, the government said that Port Klang would be developed into the National Load Centre. The rationale was to build a critical mass of cargoes and establish trade connections with major shipping liners at Port Klang. The discontinuation of the policy is not expected to affect Westports significantly as it remains shippers’ top choice for its location and efficient operations.

• Maintain BUY call. We are Overweight on the port sector due to the resilient Intra-Asian trade and potential hike in tariffs. We believe that the sector is off to a good start this year as the export volume index rose 5% to 156.5 points in Jan 2024 from 148.5 points in Jan 2023. The import volume index rose 18.5% to 199.4 points in Jan 2024 from 168.5 points in Jan 2023.

Source: AmInvest Research - 15 Mar 2024