• 9M17 core net profit (CNP) of RM440.5m was inline with ours and consensus estimates making up 77% and 75% respectively.
• Core net profit declined 4.6% YTD due to i) lower container throughput volume of only 6.8m TEUs (-8%) arising mainly from decline in transshipment cargo by 13% and ii) higher fuel cost .

• QoQ earnings improved slightly by 2% due to lower operating expenses in this quarter.

• Maintain HOLD with TP RM4.00 based on DCF methodology.

Earnings fell in tandem with lower container throughput volume 9M17 CNP of RM440.5m fell 4.6% YTD, in tandem with lower operating revenue (-4%) due to a 8% drop in container throughput volume to 6.8m TEUs. The decline came mainly from transshipment volume (-13%), arising from the shipping alliances’ reshuffling, coupled with volume losses from CMA and UASC. Notably, west bound trade lanes saw a throughput deterioration, especially the Asia-Africa (-64%) and Asia-Europe (-21%) routes. Additionally, lower CNP were also due to higher fuel cost (+36% YTD).

QoQ earnings increased slightly.

Operating revenue was flat qoq due to the drop in transshipment volume (-7%) but mitigated by improved gateway cargo volume (+3%) which generated higher yield. Net profit increased 2% due to lower expenses largely from decrease in cost of container operation (-3%) and manpower (-4.3%). EBITDA margin dropped 2.3ppts qoq to 40%.

Lower transshipment to be mitigated by higher gateway cargo

Moving forward, transshipment volume is expected to remain low at current level before returning to growth from 3QFY18 onwards. On the other hand, we are upbeat on gateway volume outlook (we are assuming +4% p.a), underpinned by an increasing Malaysia’s total export growth (+21% yoy in 3QFY17). We believe this bodes well for Westports as gateway cargos provide higher tariffs at least 2x that of transshipment cargos, and hence giving rise to better yields. Additionally, Westports’ expanded container handling capacity from CT8 and CT9 phase 1 could benefit from service updates of the shipping alliances.

Maintain HOLD with unchanged TP of RM4.00.

Overall we expect container throughput to decline 10% yoy in FY17 which is in-line with Westports’ expectation of between -7% to -12%. We retained our forecast and reiterate our HOLD call with a DCF derived TP of RM4.00. This is based on a 9% WACC and terminal growth rate of 2%. Westports is committed to a 75% dividend payout policy translating into dividend yield of 3.5% for FY17F.

Source: BIMB Securities Research - 13 Nov 2017