• Overview. Westports’ 3Q20 registered higher operational revenue of RM500m (+23% qoq, +8.7% yoy) and higher net profit of RM203.8m (+51.7% qoq, 28% yoy). These were mainly due to increase in container (+29% qoq, +6% yoy) and conventional (+30% qoq, 15% yoy) throughput on the back of reopening of global economic activities as well as overall cost efficiency. Profit margin improved to 40.7% (+7.6 ppts qoq, +6.2 ppts yoy).

• Key highlights. 3Q20 gateway volume jumped to 1.03m TEUs (+26% qoq) mainly due to higher import and export of recycle paper, medical-related products and fertilizer. Meanwhile, the recovery in transshipment volume to 1.91m TEUs (+30% qoq) was due to improvement in global trade and repositioning of empty containers. A broad volume increase qoq across all key trade lanes was seen mainly due to higher demand from the reopening of economic activities. (table2).

• Against estimates: Above. 9M20 net profit of RM491m was above our and consensus full year forecast at 85% and 81% respectively. The variance was due to higher than expected increase in throughput volume.

• Outlook. Moving forward, Westport 4Q20 could see a slight decline in volume qoq due to re-imposition of lockdown by countries caused by spike in Covid-19 cases. Nevertheless, we remain positive on its long term prospect with the view that global trade decline had seen the worst and is on a recovery path as global economies reopened. Container throughput in the region is also expected to improve on expected investment shift in global supply chain out of China especially to Southeast Asian countries on account of tensions involving the world’s big economies, in our view.

• Earning revision. We raise our earnings forecast for FY20/FY21 by 15%/10% as we factor in higher container volume growth. We now estimate FY20 volume of 10.50m TEUs (-3% yoy) from 9.38m TEUs previously and a recovery in FY21 volume by c.4% yoy.

• Our call. Following the earnings revision and we rolled over valuation to FY21, we have derived higher TP of RM4.80 (from RM3.90) and upgrade to BUY call. This valuation is based on DDM (Ke: 8.3%, TG: 5%) or implies a FY21F PER of 22.8x, which is justified, in our opinion due to higher earnings driven by throughput recovery outlook

Source: BIMB Securities Research - 27 Nov 2020