Westports’ 1Q23 net profit of RM183.6mn (QoQ: -21.9%, YoY: +20.9%) was in line with ours and consensus expectations, accounting 25% and 26% of full year estimates respectively. We are optimistic though cautious on Westport as we expect a stable 2H against a backdrop of inflationary and cost pressures. Note that the management guided a lower single digit growth in container throughput volume this year. Maintain a HOLD call on Westports, with DDM derived TP of RM3.80 (WACC: 7%, TG: 2%).

• Within expectations. 1Q23 net profit of RM183.6mn (QoQ: -21.9%, YoY: +20.9%) was in line with ours and consensus expectations accounting 25% and 26% of full year estimates respectively.

• Dividend. No dividend declared during this quarter.

• QoQ. Despite revenue growth in marine (+1%) and rental (+2%) segments, Westports’ operational revenue dropped by 2% QoQ hampered by a pullback in container (-1%) and conventional (-9%) segments. Net profit fell by 21.9% dragged by normalization in effective tax rate to 22.5% from 6.5% in 4QFY22 (lower tax expenses due to Investment Tax Allowance claimed).

• YoY/ YTD. Westports’ 1QFY23 operating revenue fell by 2.5% YoY hit mostly by lower container revenue. Despite container volume increasing by 6.7% (transhipment: +7%, gateway: +6.2%), total container revenue decreased by 4% due to lower storage charges as dwell time of transhipment boxes reduced without congestion. Operational costs increased by 3% due to higher electricity, manpower and maintenance & repair (M&R) costs, resulting in a decline in PBT by -4.8% YoY. Nevertheless, net profit grew by 20.9% YoY due to lower effective tax rate which dropped by -16.5 ppts YoY in the absence of one-off prosperity tax.

• Outlook. We are cautiously optimistic that ports in Malaysia specifically Westports can overcome adversity arising from the expected slowdown in global economy in 2023. Westport 2H23 prospect is expected to be stable despite muted near term outlook against a backdrop of high inflationary pressure and operating cost. Overall, we expect Westport gateway volume to grow in-line with resilient local businesses, while transhipment volume growth may benefit from low-base effect of weak volume in FY22 and recovery from Intra-Asia expanding economic activities.

• Forecast. Unchanged.

• Our call. Maintain a HOLD call with unchanged TP of RM3.80, based on DDM (WACC: 7% and TG: 2%). This implies 17.8x PER for FY23F and a decent dividend yield of 4.6% at current price.

Source: BIMB Securities Research - 8 May 2023