Results

• Within expectations – Reported core profit of RM151.8m for 1Q15, achieved 24.9% of HLIB’s forecast for FY16 and 25.0% of consensus.

Deviations

• None.

Dividends

• None.

Highlights

• 1Q15 group operational revenue grew by +12.7% yoy from stronger container revenue of +15.0% yoy (+7.0% yoy in throughput and 15.0% tariff hikes implemented since Nov 2015 for gateway). Westports is expected to benefit from full year implementation of tari ff hikes in FY16 for gateway and second round of tari ff hikes in 4Q18. However, higher rebates were given to key customers (those who signed long term contracts and pays gross tariff) to partially offset the tariff hikes.

• Overall conventional throughput was relatively flat yoy with the growth in dry bulk and cement being offset by lower liquid bulk and break bulk. Hence revenue was relatively flat at RM36m.

• EBITDA margin improved from 53.8% in 1Q15 to 60.0% in 1Q16 on the back of higher revenue as well as lower unit costs (improvement in utilization rate), despite the higher container related costs (rebates given to customers). The drop in fuel cost by 34% yoy has also contributed to improvement in margin.

• Asia-America route showed strong improvements of +127%, along with the recovery of US economy, while Intra-Asia and Asia-Europe routes showed moderate growth at +4% yoy and +3% respectively, being affected by slowdown in China and well as Europe. Both Asia-Australasia and Asia-Africa declined by 8%.

• CT8 expansion remains on track with operational commencement for phase 1 by mid-2016 and phase 2 by 2017, which will increase its total handling capacity to 13.5m TEUs per annum (from 11.0m TEUs).

Risks

• Container trade volatility.
• Postponement of tariff hike.
• Stiff completion from regional ports.

Forecasts

• Unchanged

Rating

BUY

Positives

• 1) Extension of ITA for CT8 and CT9; 2) Scheduled tari ff hike; and 3) TPPA beneficiary of higher trade activities.

Negatives

• 1) Extension consolidation of shipping liners; and 2) Development of 3rd port in Port Klang.

Valuation

• We maintain our BUY call with unchanged TP of RM4.80 based on DCFE valuation. We continue to lik e Westports’ business model of long-term sustainable, recurring and yet growing income.

Source: Hong Leong Investment Bank Research - 29 Apr 2016