Results

• Within expectations – Reported core profit of RM169.3m for 4Q16 and RM636.6m for FY16, achieving 104% of HLIB’s forecast for FY16 and 103% of consensus.

Deviations

• None.

Dividends

• 2nd interim dividend of 6.7sen/share declared, bringing full year dividend to 14.0sen/share, in line with forecast.

Highlights

• YoY: 4Q16 core earnings growth of +21.2% was mainly driven by operational revenue growth of +13% yoy from stronger container revenue of +14% yoy (+9% yoy in throughput and 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). This is being partially negated by higher fuel cost in 4Q16 (+20%)
• QoQ: Core earnings improved by 7.5% in 4Q16 underpinned by higher container revenue and lower effective tax rate due to higher Investment Tax Allowance (ITA) enjoyed by the group in the quarter.
• FY16: Core earnings grew by +25.8%, on the back of higher volume (container +10%; conventional +15%) as well as higher container tariffs (since Nov 2015). Traffic growth was driven by intra-Asia route at +11.1% yoy growth in traffic, along with higher focus by shipping lines in the region. Asia-Africa route continued to be a drag (-24.6%) due to realignment of selected services.
• Outlook: Real impact from restructuring of shipping alliances would take shape in 2H17 while in 1H17 the company still has positive volume growth target (due to surge in volume from transitional containers). In 2H17, gradual volume loss might be seen from Ocean Alliance of which CMA-CGM might shift some volume to Singapore. UASC, its 2nd biggest client (1m TEUs), is currently in the process of merging with Hapag Lloyd and potential impact is still unclear at this juncture. Nevertheless, we are hopeful for a flattish or a slight growth of volume in 2017 (+1%).
• With regards to the potential 3rd port in Klang rumoured to be developed in Carey Island, it is still too early to determine the potential impact to Westports as it would be at least 10 years from now before commencement of operations and it requires significant CAPEX as the new development needs a breakwater in place.

Risks

• Container trade volatility.
• Postponement of tariff hike.

Forecasts

• FY17/18 core earnings forecasts are revised upwards by 4.4/2.7% post yearly housekeeping adjustments to our model.

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.

Valuation

• We maintain our BUY call with TP revised to RM4.71 from RM4.80 based on DCFE valuation post full year adjustment of balance sheet items. We continue to like Westports’ business model of long-term sustainable, recurring and yet growing income.

Source: Hong Leong Investment Bank Research - 13 Feb 2017