Results

• Above expectations – 4Q17 core net profit came in at RM211.0m, bringing FY17 core earnings to RM637.9m, accounting for 111% of HLIB and 105% of consensus estimates.

Deviations

• The results were above expectations due to the higher ITA drawdown pertaining to CT8-CT9 expansion, which in 4Q17 resulted in a positive tax credit of RM25.7m.Thus eventuating to an effective tax rate of 3.8% on a full year basis, which is below our estimate of 10%.

Dividends

• Declared second interim dividend of 7.95 sen bringing FY17 dividend to 14.32 sen/ share (FY16: 14 sen/share, +2.3% yoy) yielding 4% with a pay-out ratio of 75%.

Highlights

• FY17: Revenues declined 5% (to RM1.71bn) due to a 9% decline in overall container throughput on the back of the realignment of container shipping alliances. Core PBT decreased by 11% on higher interest (+5.6%) and depreciation (+12.8%) expenses. Core earnings was flattish (+1.5%) due to a full year effective tax rate of 3.8%.

• YoY: Revenues declined 7.3% (to RM434m), due to decline in transhipment throughput (c. -23%) arising from the realignment of alliances, partially offset by stronger gateway throughput (c. +15%). EBITDA declined by 10.5% to RM208.8m on the back of higher fuel costs (+28%).

• QoQ: Revenues grew 3.1% on higher throughput (gateway: +6.9%; trans: +2.8%). Despite the higher depreciation (+5%) during the quarter. core earnings grew 55% to RM222m due to positive tax credits of RM25.4m.

• Outlook: For FY18, we believe overall throughput to be flat as negative transhipment throughput growth due to full year impact of shipping alliance realignment, being offset by growth in gateway volume.

• On its expansion, CT9 Phase 1 was completed on time with the 600m wharf having been commissioned into service towards the end of 2017. Westport’s total terminal container handling capacity now stands at 14m TEU per annum.

• CT9 Phase 2 expansion will depend on terminals being consistently above 75% utilization rates (currently at 70%). Management expects this trigger point to be around 200k TEU per week (currently processing 175k TEU per week). CT9 Phase 2 will increase capacity to 15.5m TEU per annum.

Risks

• Container trade volatility.

• Postponement of tariff hike.

Forecasts

• Post earnings revision; we adjust our FY18-19 earnings upward by 7.9% and 8.8% as we factor is stronger growth from gateway volumes. We introduce our FY20 numbers.

Rating

HOLD ↔

• 2017 was 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 the reshuffled shipping alliances grow.

Valuation

• We maintain our HOLD call albeit with a higher TP of RM3.68 (from RM3.47) as we roll our valuation forward based on DCFE.

Source: Hong Leong Investment Bank Research - 15 Feb 2018