Westport’s 1HFY18 core earnings of RM244.7m (-12.9% YoY) was within ours and consensus forecast at 48% and 45% respectively. The decline in YoY and YTD was mainly due to higher depreciation, finance cost and effective tax rate. The decline QoQ was mainly due to higher finance cost. Feasibility study on the port expansion is still being carried out and is expected to be completed latest by 1QFY19. For FY18, we believe overall throughput to be relatively flat YoY. We maintain HOLD with an unchanged DCFE based TP of RM3.30.

Within expectations. 1HFY18 revenue of RM779.1m and core earning of RM244.7m, accounted for 48% of ours and 45% of consensus forecast.

Dividend. Declared interim dividend of 5.4 sen (ex-date: 7 Aug 18, Payment date: 20 Aug 2018).

YoY. Revenue rose by 6.0% to RM394m (2QFY17: RM371.7m, after removing the impact of MFRS15: RM49.3m), mainly due to the increase in gateway throughput volume (+16%) and conventional volume (+8%). This was partially offset by the decrease in transhipment throughput volume (-6%). Core earnings declined by 13.7% to RM120.9m on higher depreciation (+5%), finance cost (+32%), and effective tax rate (24.6% vs 14.7%).

QoQ. Revenue rose 2.3%, mainly due to the increase in gateway throughput volume (+5%) and conventional volume (+16%), despite the decrease in transhipment throughput volume (-3%). Core earnings declined by 2.4%, mainly due to higher finance cost (+15.6%).

YTD. Revenue rose by 2.0% to RM779.1m (1HFY17: RM763.8m, after removing the impact of MFRS15: RM96.2m), mainly due to the increase in gateway throughput volume (+20%), despite the decrease in transhipment throughput volume (-13%) and conventional volume (-3%). Core earnings declined by 12.9%, on higher depreciation (+12.5%), finance cost (+27.2%) and effective tax rate (24.5% vs 18%)

Feasibility study still being carried out. Feasibility study on the CT13-19 expansion is still being carried out and is expected to be completed latest by 1QFY19. The port is currently operating at c.65% utilisation rate which is below the 75% rate to trigger crane installations for further capacity expansion. Based on our throughput growth assumptions, this should only happen in 2021.

Outlook. For FY18, we believe overall throughput growth to be muted as the growth in gateway throughput will be offset by the decline in transhipment throughput due to full year impact of shipping alliance realignment.

Forecast. Unchanged.

Maintain HOLD, unchanged TP of RM3.30 based on DCFE (WACC: 8.0%).

Source: Hong Leong Investment Bank Research - 26 Jul 2018