• Overview. Westports’ 1Q20 core net profit improved by 9.2% yoy to RM152.8m. This is mainly due to higher operational revenue (+10% yoy) on the back of container tariff hike with effect from 1st March 2019 despite registering flatten total container throughput volume. On qoq basis, core net profit declined by 14% due to overall operating cost and higher effective tax rate of 24.3% (+3.7 ppts).

• Key highlights. 1Q20 registered a minimal drop in container volume growth of -0.4% yoy. Transhipment fell by 7.6% after 6 consecutive strong quarter growth of average 16%, due to lockdowns & global trade disruption (refer table 3). The worst impacted trade lanes were Intra-Asia (c.63% of total trade lanes) fell -2% yoy followed by Asia-Europe (-3% yoy) and Asia-Australasia (- 5% yoy). Meanwhile gateway cargo is marginally impacted in 1Q20, but started to see a decline when lockdowns began.

• Against estimates: Below. 1Q20 core net profit can be considered below our full year forecast at 23% as we expect a deterioration in Westports’ container volume and earnings moving forward.

• Outlook. Westports’ FY20 container throughput volume will be hit hard as Covid-19 furiously spread worldwide and impacting the world trade as well as disrupting global supply chain. We anticipate a weak 1H20 container volume with full impact to be felt in 2Q20 followed by a slow gradual recovery in 2H20 assuming that Covid-19 could be significantly contained by then. Our new FY20 volume assumption see a drop of 13.6% yoy. Overall, our forecast have been revised down by 12%/8% for FY20/FY21 respectively.

• Our call. Maintain HOLD with lower TP of RM3.90 (from RM4.40) based on DDM methodology (Ke: 8.8%, TG: 5%) valuation or implied FY20F PER of 23x. Westports is currently trading at a FY20 PER of 21.6x, close to its 5-years average forward PER of 22x, which is fair in our view. Downside risks are, i) lower-than-expected container volume due to prolong global business disruption and ii) higher-than-expected operating costs.

Source: BIMB Securities Research - 8 May 2020