• Westports’ 3QFY18 net profit increased by 16.8% qoq to RM142.3m contributed by higher container throughput volume (+9% qoq)

• Net profit yoy, fell 5.6% mainly due to tax rate normalization, in absence of investment tax allowance (ITA)

• Overall, 9MFY18 net profit RM387.9m was in-line with our forecast at 70.5%

• Maintain HOLD with TP of RM3.85 based on DDM valuation

Strong qoq supported by higher container throughput volume

Westports’ 3QFY18 revenue increased to RM417.6m (+6% qoq) supported by higher total container throughput volume of 2.45m TEUs (+9%). Gateway volume reached new high of 0.87m TEUs (+6% qoq) aided by greater domestic activities with imports growing 20%. Meanwhile, transhipment volume reversed 5 quarters of decline by posting a growth of 10% qoq due to high regional economic activities. Consequently, net profit surged to RM142.3m (+16.8% qoq), which was partly contributed by higher income earned from investment funds, as well as savings on commitment fees due to cancellation of Bank of China revolving credit facilities.

Earnings decline yoy due to tax rate normalization

Westports’ 3QFY18 net profit declined by 5.6% yoy mainly due to higher effective tax by 6.7ppts in the absence of ITA. At PBT level, it increased by 2.4% yoy due to increase in container volume (+14%) especially coming from Intra-Asia (+15%) and Asia-Europe (+16%). Additionally, lower overall operating cost led to PBT margin increasing by 1.4ppts yoy. Overall, 9MFY18 net profit of RM387.9m was in-line with our forecast at 70.5%.

Outlook remains intact

Growing regional economic activities is expected to benefit Westports as Port Klang is a major transhipment hub for redistribution to the South East Asia region. Moving forward, we expect transhipment volume to grow higher, mitigating the moderate growth expectation from higher-margin gateway volume. As for the US-China trade war, we believe it possesses limited direct risk as it only has c.8% in Asia America throughput volume. Incidentally, the trade war may come to an end as both nations have shown willingness to negotiate on ending the deadlock. Domestically, we expect the scheduled tariff revisions effective 1 March 2019 to remain on track and provide some improvement for the company.

Maintain HOLD with TP of RM3.85

We maintain our HOLD call with TP of RM3.85 based on DDM valuation (Ke:8.8%, TG:5.5%). We continue to like its stable business and steady dividend payment stream which rewards long-term shareholders.

Source: BIMB Securities Research - 12 Nov 2018