Westport’s FY18 core earnings of RM526.9m were above our expectations but within consensus. The higher than expected results was mainly due to higher than expected container throughput volumes. The feasibility study on the port expansion is expected to complete by 1QFY19. We increase our FY19 and FY20 earnings forecast by 3.3% and 3.2%, respectively as we take into account of a higher throughput volume growth assumption. Maintain HOLD, with a higher TP of RM3.66 based on DCFE (CoE: 8.0%).

Above expectations. FY18 core earnings of RM526.9m were above our expectations but within consensus, accounting for 106.3% and 101.9% of forecasts, respectively. The higher than expected results was mainly due to higher than expected container throughput volumes.

Dividends. Declared 6.33 sen dividend (ex-date 18 Feb 2019), bringing full year dividend declared to 11.7 sen.

MFRS15 impact back in FY17 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 FY17. As such, we have chosen to analyse the EBITDA as the YoY and YTD revenue figures are not comparable.

QoQ. EBITDA (RM259.5m) and core earnings (RM143.1m) remained relatively flat (+3.7% and +2.8%, respectively) as the increase in transhipment throughput volume (+9.5%) was slightly offset by the decrease in gateway throughput volume (-2.3%).

YoY. EBITDA increased 24.3% mainly due to the increase in transhipment throughput volume (+18.5%) and gateway throughput volume (+10.4%), but slightly offset by the decrease in conventional cargo volume (-8.5%). Core earnings increased 18.8% in tandem with EBITDA, but this was slightly offset by higher depreciation (+4.4%).

YTD. EBITDA increased marginally by 6.2% to RM969.3m, due to the increase in gateway throughput volume (+17.4%), slightly offset by the increase in operational cost (manpower, electricity, fuel etc.). Core earnings decreased slightly (-3.3%) to RM526.9m, on the back of higher depreciation (+11.5%) and finance cost (+19.6%).

Feasibility study nearing completion. Feasibility study on the proposed expansion (CT10-CT19) is expected to complete by 1QFY19. We note that the port is currently operating at c.68% utilisation rate, which is below the 75% rate to trigger additional crane installations for further capacity expansion. Based on our throughput growth assumptions, this should only happen in 2021.

Outlook. For FY19, we expect container throughput volume to grow by at least 4% as the full impact of the shipping alliance realignment has been realised in FY18, resulting to a low base effect.

Forecast. We increase our FY19 and FY20 earnings forecast by 3.3% and 3.2%, respectively as we take into account a higher throughput volume growth assumption.

Maintain HOLD, with a higher TP of RM3.66 based on DCFE (CoE: 8.0%). We maintain our HOLD call as we do not foresee any catalysts in the near-term to significantly uplift earnings. We believe the market has already priced in the potential upside of the throughput volume growth moving forward.

Source: Hong Leong Investment Bank Research - 31 Jan 2019