Results

• Within expectations – Reported core profit of RM159.1m for 2Q16 and RM309.9m for 1H16, achieving 50.8% of HLIB’s forecast for FY16 and 51.2% of consensus.

Deviations

• None.

Dividends

• Declared interim net dividend of 7.30 sen.

Highlights

• 1H16 operational revenue grew by +14.5% yoy from stronger container revenue of +17.3% yoy (+11.1% yoy in throughput and +15.0% tari ff hikes implemented since Nov 2015 for gateway). However, higher rebates were given to key customers (those who signed long term contracts and pay gross tariff) to partially offset the tariff hikes.

• Growth is mainly driven by transhipment volume (+15.5%), due to back-routing of empty containers (from Asia-Europe and Asia-Africa routes) and ad-hoc cargos. Excluding the contribution, volume growth would be single-digit. Gateway volume continued to be slow due to GST effect resulting in lower import cargo volume.

• Overall conventional throughput increased by 8.1% yoy, driven by liquid bulk operation on new commencement of bunker operations. However, revenue was down by 2.0% yoy on lower cement throughput (-7.3% yoy).

• EBITDA margin improved from 54.2% in 1H15 to 56.8% in 1H16 on the back of higher revenue (higher volume and tariff revision) as well as drop in fuel cost by 24% yoy.

• Asia-America route enjoyed +91.5% yoy growth in traffic, along with the recovery of US economy, while Intra-Asia and Asia-Europe routes showed moderate growth at +8.5% yoy and +9.8% respectively, affected by slowdown in China and well as Europe.

• On the shipping alliances, O3 is still undecided on the routes realignment post CMA-GCM merge with NOL. More visibility can only be expected sometime in Oct. Nevertheless, management is still guiding for growth in 2016.

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 Jul 2016