Westport’s 9MFY18 core earnings of RM383.8m (-9.5% YoY) was within ours and consensus forecast at 77.5% and 74.3% respectively. The increase QoQ was mainly due to lower finance cost and effective tax rate. The decline in YoY and YTD was mainly due to higher depreciation, finance cost and effective tax rate. 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 RM3.49.

Within expectations. 9MFY18 revenue of RM1196.7m and core earnings of RM383.8m, accounted for 77.5% of ours and 74.3% of consensus forecast. No dividends were declared.

QoQ. EBITDA increased by 8.4% to RM250.2m, mainly due to the increase in transhipment throughput volume (+10.5%) and gateway throughput volume (+7.4%) but slightly offset by the decrease in conventional volume (-9.2%). Core earnings increased by 15.1% to RM139.2m, mainly due to lower finance cost (-4.8%) and effective tax rate (21.9% vs 24.6%).

YoY. EBITDA increased 6.6% mainly due to the increase in transhipment throughput volume (+11.3%) and gateway throughput volume (+20.8%) but slightly offset by the decrease in conventional volume (-5.5%). Core earnings declined by 2.9%% on the back of higher depreciation (+17.5%), finance cost (+24.7%), and effective tax rate (21.9% vs 15.2%).

YTD. EBITDA increased marginally by 0.9% to RM709.8m, due to the increase in gateway throughput volume (+20.1%) which was offset by the decrease in transhipment throughput volume (-5.7%) and conventional volume (-3.8%). Core earnings declined by 9.5% to RM383.8m, on the back of higher depreciation (+14.1%), finance cost (+26.3%) and effective tax rate (23.5% vs 17.1%).

MFRS15 impact towards 3QFY17 not disclosed. To recap, the MFRS15 impact towards Westports (began in FY18) requires marketing costs to be deducted directly from revenue. We note that this has not been reflected in the revenue figures of 3QFY17. As such, we have chosen to analyse the EBITDA as the YoY and YTD revenue figures are not comparable.

Feasibility study still being carried out. Feasibility study on the proposed 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 RM3.49 based on DCFE (CoE: 8.0%).

Source: Hong Leong Investment Bank Research - 12 Nov 2018