• Downgrade to HOLD (TP: RM3.95). Westports achieved a FY23 Net Profit of RM779.4mn (+11.4% YoY), aligning with both our and consensus expectations, accounting for 107% and 104% respectively. Westports’ 4QFY23 recorded a 6.3% YoY increase in revenue, driven by an 11% YoY rise in container volume (transshipment: +5%, gateway: +20%). Nevertheless, PAT declined by -12% YoY mainly due to higher operating cost and effective tax rate. The group declared a 2nd interim dividend of 8.72 sen, bringing the cumulative FY23 DPS to 16.9 sen, resulting in a 4.5% dividend yield. We downgraded Westports to a HOLD call on the back of a cautious global trade outlook. Our TP remains at RM3.95 based on the valuation DDM methodology of WACC: 7% and TG: 2%. This implies a 17.5x PER for FY24F.

• Key highlights. In 4QFY23, revenue rose by +6.3% YoY, mainly driven by a 5% YoY increase in Container revenue due to higher throughput volume (+11% YoY), despite a lower contribution from Value Added Services (VAS). Marine revenue also increase by +12% YoY with an 8% rise in container vessels berthing. However, PAT declined by -12% YoY due to higher operating cost (i.e., labour & electricity) and higher effective tax rate. For the full year FY23, Conventional revenue witnessed an 11% YoY decline, primarily due to a significant decrease in breakbulk volume, especially for project cargoes and ingots, coupled with a slight reduction in coils and mixed steel. This decline offset the revenue growth in Marine and Rental segment, particularly from new tenant rental activity at the Westports Logistics Centre and in liquid bulk operations. On a QoQ basis, both revenue and net profit increased by +2.2% and 5.7% respectively, driven by higher growth across all segments.

• Earnings Revision. No change to our FY24-25F earnings forecast.

• Outlook. Despite the optimistic domestic outlook, we are cautious about Westport's prospects due to the escalation of the Red Sea crisis, which is impacting global trade, particularly the East-West trade route. If prolonged, this situation could severely constrain global trade, leading to longer delivery times and higher freight costs that may consequently stifle demand.

Source: BIMB Securities Research - 5 Feb 2024