• Overview. Westports’ 3Q22 operations revenue increased by 1.1% QoQ and 3.7% YoY thanks to higher conventional revenue from break bulk and liquid bulk. Core net profit of RM150.4mn saw a decline by 7.3% QoQ and 15.6% YoY however mainly due to higher overall operating cost especially fuel cost (jumped by c.75% YoY) and one-off prosperity tax. Hence, margin dropped to 29.1% (-2.6 ppts QoQ, -6.6 ppts YoY).

• Key highlights. Westports’ 9M22 container throughput of 7.47m TEU (-6% YoY) was impacted by lower transhipment volume (-13% YoY), despite gateway volume that increased by 7% YoY. The decline in transhipment was mainly attributed to supply chain challenges, blank sailings, demand contraction and outset of global economic inflationary effects. Westports’ value-added services revenue (VAS) also declined as port congestion in Westports eases.

• Against estimates: Inline. 9M22 net profit of RM464.5mn was in line with our and consensus full year forecast, accounting 79% and 75% of forecast respectively.

• Outlook. Westport 4Q container volume will see positive recovery growth YoY from lower base, but for the full year 2022 is likely to see single digit decline. As for FY23, despite the easing in supply chain disruption, we remain cautious on the prospect given other global headwinds such as energy crisis, inflationary pressure and rising interest rates which may curb import demand and therefore, could limit the recovery in Westports’ volume especially transhipment. Additionally, margin could be under pressure due to lower VAS revenue and higher operating cost.

• Earnings revision. We revise lower our FY23-24F earnings forecasts by 5%- 7% after incorporating lower volume, VAS income and margin. Against lower base, we estimate FY23 container throughput volume to grow c.4% YoY, which in within management guidance of 0-5%.

• Our call. Maintain a HOLD call with a lower TP of RM3.50 (from RM3.75). Our valuation is based on DDM (WACC: 7% and TG: 2%), which implies 17.5x PER for FY23F. We like Westports due to its respectable dividend payout ratio of 75%, translating to a decent dividend yield of 4%-4.9% for FY22-FY24F at current price. We recommend investors to accumulate on dip.

Source: BIMB Securities Research - 6 Nov 2022