- We maintain HOLD on Westports, with an unchanged DCFderived fair value of RM2.91/share (WACC: 6.1%; terminal rate after Year 2024: 1%). This implies a fair forward PE of 20x on FY14F earnings.

- Westports yesterday announced a core net profit of RM122.5mil for 2QFY14 (+15% YoY; +12% QoQ), bringing 1HFY14 earnings to RM231.5mil (+16% YoY), which accounts for 47%-48% of our and consensus forecasts.

- We deem the result to be in line with expectations. The 1HFY13 profit accounted for 46% of the full-year earnings. Management expects continuing growth in 2HFY14, but that may not be as strong as 1HFY14’s.

- It declared the first single-tier dividend of 5.1 sen/share for FY14, in tandem with its 75% dividend policy. This is also in line with our forecast of a 10.5 sen/share payout for FY14.

- The effective tax rate was at 17% for 1HFY14 vs. 21% for 1HFY13. The company expects the effective tax to be between 10%-15% for the year. For now, we maintain our effective rate assumption at 18%.

- For 1HFY14, operating revenue rose 13% YoY, but net operating cost rose by the same quantum.

- The 1HFY14 operating profit was within expectations, with EBIT at RM311mil (+12% YoY) – accounting for 47% of our EBIT estimate of RM659.1mil. EBITDA margin (excluding construction) was maintained at 52%.

- The YoY top line growth was due to a 13% rise in container throughput vs. our full-year growth forecast of over 8%. The 4.0mil TEUs achieved in 1HFY14 accounts for half of our full-year estimate of 8.09mil TEUs.

- The company now expects a 7%-13% growth in container volume for FY14 vs. its earlier projection of 6%-12%. It recorded a historical high in total container throughput of 718,000 TEUs in May 2014.

- The port’s capacity is now at 10.5mil TEUs vs. 9.5mil TEUs as at the end of last year. It will be increased to 11mil when CT7 becomes fully operational by end-FY14.

- Management is hopeful of an extension to the investment tax allowance (ITA), which expires at the end of the year, but does not foresee the Transport Ministry making a decision on its proposed tariff hikes at anytime soon.

- With the P3 overhang out of the way, Westports is now well positioned to take advantage of trade growth. A key catalyst would be a more than expected improvement in throughput growth.

Source: AmeSecurities