• Wesports 1Q18 earnings met 20.1% / 22.2% of our estimates / consensus albeit a decline of 12.1% yoy attributed to lower transhipment volume of 19% yoy.

• Nevertheless, transhipment volume is recovering for the past two consecutive quarters.

• We remain positive on its outlook with tariff revision as catalyst and better volume mix; moderate gateway volume growth and low single digit recovery rate for its transhipment volume.

• Maintain BUY with unchanged TP of RM4.00 based on DDM methodology. Accumulate on dip given attractive dividend yield of 4.1% in addition to a potential capital upside of 20.1%.

Weaker earnings amidst lower transhipment volume

Westports posted weaker 1Q18 earnings of 12.1% yoy due to lower transhipment volume of 19% yoy. We had anticipated the lower transhipment volume for the quarter as a result of residual impact from shipping industry realignment since 1st April 2017.

Recovery in transhipment volume ahead

For the past two consecutive quarters, volume transhipment volume has recovered from its lowest point in 3Q17 – registering 2% qoq growth for each period (Chart 1). We expect this organic growth momentum will remain at current rate at low single digit as guided by management in early this year.

Catalyst from tariff revision in September 2018

We expect margin improvement arising from a better volume mix due to gateway volume growth combined with low recovery rate for its transhipment volume. We forecast margin will further expand upon the enforcement of tariff revision for its gateway volume in September 2018 despite of sticky tariff for its transhipment volume. The better volume mix was seen after 1st April 2017 i.e. the gateway volume portion increasing to 34.4% in the 2nd six months versus 32.7% in the 1st six months.

Maintain Buy at TP of RM4.00

We maintain our BUY call with a TP of RM4.00 with based on DDM valuation methodology (Ke: 8.8%, terminal growth rate: 5.5%). We suggest to accumulate on dips given that the current price level offers a decent dividend yield of 4.1% based on 75% dividend payout ratio.

Source: BIMB Securities Research - 26 Apr 2018