Results

• Within expectations – 3Q17 core net profit came in at RM143.4m, bringing 9M17 core earnings to RM 424.2m, accounting for 74% of HLIB and 72% of consensus forecast.

Deviations

• None.

Dividends

• None.

Highlights

• YoY: 3Q17 core net profit weakened 8.9% due to: (i) 24% decline in transhipment throughput due to realignment into Ocean Alliance albeit being partially offset by stronger gateway throughput; and (ii) higher deprecation cost due to capacity expansion.
• QoQ: While throughput was relatively flattish, core net profit improved slightly by 2.4%. Depreciation was lower but being partially offset by higher tax rate.
• 9M17: Core earnings plunged by 9.2% mainly attributable to: (i) 8% decline in overall container throughput due to realignment of container shipping alliances; and (ii) higher depreciation cost due to capacity expansion.
• Outlook: 2H17 overall container volume would be weaker compared o 1H17 as full impact from alliance reorganisation set in. The guided expectation on overall container volume YoY decline is between 7% and 12% for 2017. This is broadly in line with our container throughput forecast of -9.9%.
• For FY18, we believe overall throughput growth would be close to nil as transhipment throughput growth would be negative due to full year impact of shipping alliance realignment, being offset by growth in gateway volume.
• On its expansion, CT8 construction is nearing its completion while CT9 Phase 1 is expected to be completed by Dec 2017. All of the mentioned expansion would bring its capacity to 14m TEU per annum.

Risks

• Container trade volatility.
• Postponement of tariff hike.

Forecasts

• Maintain 2017 forecast. Cut FY18/19F by 8% to account for weaker container throughput growth. Despite higher expected margin in FY18 onwards due to better throughput mix, we believe lesser tax allowance in 2018 would put a drag on the earnings.

Rating

HOLD↔

• 2017 is a year of consolidation for the group as the overall shipping alliances’ movement is unfavourable for the group on a net basis. We believe the group would return to its growth path in 2019 gradually as the gateway volume continues to grow while its transhipment volume would resume growth when its reshuffled alliances grow.

Valuation

• We maintain our HOLD call with TP reduced to RM3.47 from RM3.83 based on DCFE valuation.

Source: Hong Leong Investment Bank Research - 13 Nov 2017