Westports’ 1HFY23 Net Profit of RM378.4mn (+20.4% YoY) was within our and consensus’ expectations, accounting for 52% and 53% of full year forecast respectively. Container volume increased by 7.6% YoY (transhipment: +4.4%, gateway: +12.6%) due to increase in regional trade and partly driven by repositioning of empty containers. Meanwhile, conventional volume eased marginally by -0.7% due to lower break bulk throughput. Westport's long-term outlook remains positive despite a muted near-term outlook against a backdrop of persistent global inflationary pressure which could impede a strong recovery in trade volume. We maintain our FY23 container throughput volume growth of +4% YoY to 10.65 TEUs. Maintain HOLD on Westports, with DDM derived TP of RM3.80 (WACC: 7%, TG: 2%).

• Within expectations. 1HFY23 Net Profit of RM378.4mn (+20.4% YoY) was in line with ours and consensus expectations, accounting for 52% and 53% respectively.

• Dividend. 1st interim DPS of 8.19 sen was declared (vs 1H22: 6.91 sen) in 1H23. We maintain our FY23f DPS of 16 sen, translating into 4.5% DY.

• QoQ. In 2QFY23, Westport's operational revenue saw a growth of 3.5% QoQ, reaching RM520.9mn. This was driven by positive contributions from all segments, with Container revenue up by +4%, Marine revenue by +1%, and Rental revenue by +6%. These gains helped to offset the decline in the Conventional segment, which experienced a decrease of - 2% QoQ. Nonetheless, Net profit jumped by 6.1% QoQ to RM194.8mn, thanks to higher revenue and a lower effective tax rate of 23.3% (-0.8 for FY23 QoQ).

• YoY. Container volume increased by +8% YoY, mitigating the decrease in conventional volume of -10% YoY. The container volume growth was partly driven by the repositioning of empty containers. Nevertheless, the drop in conventional volume was due to lower break bulk throughput (e.g., rubber, ingots, coils, mixed steels). Operational costs decreased by 7% YoY, mainly due to lower fuel costs (-39%), mitigating the higher labor and electricity costs. As a result, Net Profit increased by 20% YoY, with the margin improved by 5.6 ppts to 37.4%.

• YTD. Westports’ 1HFY23 revenue fell marginally by -0.3%, mainly due to lower container and conventional revenue. Despite container volume increasing by 7.6% (transshipment: +4.4%, gateway: +12.6%), total container revenue decreased by 1% due to lower Value-Added Services (VAS) from storage charges and reefer, as the dwell time of transshipment boxes reduced without congestion. Net Profit jumped by 20.4% YoY due to the overall lower operating cost.

• Outlook. We hold a cautious yet optimistic view that ports in Malaysia, particularly Westport’s can overcome the adversity arising from the expected slowdown in the global economy in 2023. Westport's long-term outlook remains positive despite a muted near-term outlook against a backdrop of persistent global inflationary pressure impeding a strong recovery in trade volume and lower VAS. We expect Westport gateway volume to grow in line with resilient local businesses, while transshipment volume growth may benefit from the low-base effect of the weak volume in FY22 and the expansion of economic activities in the Intra-Asia region. Overall, we maintain our FY23 container throughput volume growth of +4% YoY to 10.65 TEUs (in line with management guidance of lower single-digit growth).

• 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 decent dividend yield of 4.5% at current prices.

Source: BIMB Securities Research - 28 Jul 2023