• Overview. Westports’ 2Q20 registered lower operational revenue of RM405m (-11% qoq, -11% yoy) and lower net profit RM134m (-12% qoq, -19% yoy). These were mainly due to reduction in container (-10 qoq, -17% yoy) and conventional (-22% qoq, -8% yoy) throughput caused by Covid-19 impact.

• Key highlights. 2Q20 container volume fell by 17% yoy (transhipment: -20%, gateway: -10%) due to lockdowns & global trade disruptions (table 2). A broad decline across all key trade lanes was seen with the worst affected coming from Intra-Asia (c.61% of total trade lanes), which fell -20% yoy followed by Asia-Europe (-19% yoy) on account of movement restrictions, blanked sailings and idling of carriers caused by low demand.

• Against estimates: Inline. 1H20 net profit of RM287m was inline with our and consensus full year forecast at 49% and 50% respectively.

• Dividend. Lower DPS of 5.05 sen was declared, implying 60% dividend payout (vs 2Q19: 6.74 sen, 75% payout). We estimate a total FY20 DPS of 10.2 sen, translating to 2.8% dividend yield.

• Outlook. Covid-19 has given rise to uncertainties in the global as well as domestic economy. As for Westports, we envisage that PENJANA stimulus package announced recently as well as reopening of economies worldwide accompanied with their own stimulus package could bolster throughput traffic in 2H20 against its worst 2Q20 decline. Nevertheless, as Covid-19 yet to be fully contained globally, we believe Westports’ annual throughput volume to decline in the lower teens in FY20 before showing positive growth in FY21 as recovery gains full traction. Container volume peak of 10.86m TEUs achieved in FY19 could only be duplicated in FY22, in our view.

• Our call. Our forecast remains unchanged with TP of RM3.90 based on DDM methodology (Ke: 8.8%, TG: 5%) valuation or implied FY20F PER of 23x. Maintain Hold recommendation on concerns regarding impact uncertainties of the coronavirus scare in the near term outlook. Over the long term, we still like Westports due to its stable business model that combines an attractive high yielding local cargo and volume-centric transhipment as well as global trade support from the manufacturing sector. Hence, we advise accumulate on dips.

Source: BIMB Securities Research - 27 Jul 2020