Overview. Westports’ 9MFY21 core net profit (exclude one-off gain from insurance recovery for QC51-52 of RM41m) increased to RM544.3m (+10.9% yoy) underpinned by higher container revenue. The substantial rise in revenue is due to low base effect especially in 2QFY20. On qoq basis, 3QFY21 core net profit was flat at RM178m (+0.1% qoq) mainly due to the slightly lower throughput volume mitigated by higher value added services revenue.

Key highlights. Westports’ 3QFY21 container throughput volume decreased to 2.63m TEU (-0.8% qoq, -10.5% yoy) mainly due to lower gateway as a result of domestic lockdown. Lower Intra-Asia volume reflected some of the ongoing regional supply chain disruption and port congestions. Westports is still experiencing congestion with current yard utilisation at maximum but is not as bad as it was in Dec 2020, according to management. We maintain our FY21 volume assumption of +4% yoy (in-line with management guidance 0-5%).

Against estimates: Inline. Its 9MFY21 core net profit of RM544.3m makes up 76% of both our and consensus forecast.

Outlook. Wesports’ yard congestion might affect efficiency and container throughput volume in the short term. However, we believe efforts by Westports to get shippers to clear their containers early and higher revenue gain from value added service (reefers and storage fees) could minimize impact on earnings. Additionally, we do not expect the current congestion to have structural impact on global ports and this situation should resolve by mid-2022. The long-term prospect remains positive on the back of economic recovery. Post-pandemic, Westports is expected to benefit from improvement in global trade, investment in manufacturing sector and container ships, as well as shift in global supply chain out of China to the region.

Earnings revision. The latest 2022 budget announced a special one-off tax known as “Cukai Makmur” which will see a tax of 33% vs 24% currently on profit above RM100m in 2022 assessment year. Hence, we have revised down our FY22 forecast by 10.5% to incorporate this one-off tax.

Our call. Maintain BUY with new TP of RM5.00 (previously RM4.80), based on DDM (Coe: 7.4%, TG: 3.5%) and rolling forward our valuation base year. We continue to like Westports due to i) long term sustainable business model, ii) proxy to rising consumption and industrialization in greater Klang Valley, iii) stable dividend payout of 75% and iv) concerted efforts in implementing ESG initiatives.

Source: BIMB Securities Research - 1 Nov 2021