Results

• Within expectations – Reported core profit of RM157.5m for 3Q16 and RM467.3m for 9M16, achieving 76.7% of HLIB’s forecast for FY16 and 75.5% of consensus.

Deviations

• None.

Dividends

• None.

Highlights

• YoY: 3Q16 core earnings growth of +20.6%, mainly driven by operational revenue growth of +15.4% yoy from stronger container revenue of +17.9% yoy (+8.7% yoy in throughput and +15.0% tariff hikes implemented for gateway since Nov 2015), which was partially offset by higher rebates given to key customers (those who signed long term contracts and pay gross tariff) to partially offset the tariff hikes. During the quarter, Westports recognised asset write-offs and impairments (related to Hanjin) of RM6.8m. Expect further impairments of RM4.1m from Hanjin in 4Q16.

• QoQ: Core earnings dropped marginally by 1.0%, on lower revenue mix (higher transhipment volume and lower gateway volume) and higher operational costs (staff).

• YTD: Core earnings growth of +25.4%, on the back of higher volume (container +10%; conventional +10%) as well as higher container tariffs (since Nov 2015). Traffic growth was driven by Asia-America route at +71.9% yoy growth in traffic, along with the recovery of US economy, while Intra-Asia and Asia-Europe routes at +10.6% yoy and +6.8% respectively.

• Outlook: Short term uncertainties arise from the ongoing restructuring of global shipping lines. Ocean Alliance has recently announced its initial phase of routes realignment, which seemed to be relatively neutral to Westports. It is still early to ascertain the potential effect from upcoming new alliance “The Alliance” – Hapag Lyodd and UASC (currently a member of O3). Management expects more certainties by end-2016 or early-2017. Nevertheless, management remains upbeat on continued volume growth in 2017.

Risks

• Container trade volatility.

• Postponement of tariff hike.

• Stiff completion from regional ports.

Forecasts

• Unchanged.

Rating

BUY ↔

• Westports is enjoying stable and recurring earnings from ongoing throughput growth at Port Klang, leveraging on its geographical advantages as well as low cost structures. The upcoming tariff revisions by Sep-18 will further enhance its margins.

Valuation

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

Source: Hong Leong Investment Bank Research - 11 Nov 2016