1Q20 core net profit of RM169.3m (-5.0% QoQ, +21.2% YoY) was slightly below ours and consensus expectations, accounting for 27% and 28%, respectively. While 1Q made up 27% of our full year forecast, we still deem this to be slightly below expectations as we expect the major effect of Covid-19 pandemic to hit in April and continue throughout 2Q. Overall, performance was influenced by full reflection of tariff hike that brought up the revenue despite the decrease in throughput volume. Management guided that it is possible for Westpo rts to have double digit negative growth in light of protracted pandemic that could disrupt supply chains. We cut our earnings by -14.0% in FY20-21 in anticipation of weaker overall throughput volume. Maintain HOLD, TP lowered to RM3.66 (from RM3.92) based on DCFE with assumption of CoE: 7.4%. Although we like Westports for its stable business model (during normal circumstances) as well as stable dividend payout ratio of 75%; recent Covid-19 outbreak has raised a near term concern given the potential negative impact to volume.

A tad below expectations. 1Q20 core net profit of RM169.3m (-5.0% QoQ, +21.2% YoY), accounted for 27% and 28% of ours and consensus full year forecast, respectively. While 1Q made up 27% of our full year forecast, we still deem this to be slightly below expectations as we expect the major effect of Covid-19 pandemic to hit in April and continue throughout 2Q. Our derivation of 1Q20 core PATMI is after removing a one-off impairment loss on trade receivables amounting RM16.8m due to vessel berthing incident in Nov 2019. No dividend was declared as it usually declared semi-annually.

QoQ. Top-line growth was a tad up by 1.1% arising from higher value-added service revenue; although both container and conventional volume was down by 10.6% and 0.4% respectively. However, core PATMI was lower by -5.0% due to higher manpower cost (+13.0%) and lower interest income (-12%).

YoY. Revenue climbed by 10.1% attributable to higher container gateway volume (+14.6%) and conventional cargo volume (+16.5%) as wells as from the implementation of container tariff hike effective 1 March 2019. Operational cost was higher by 5.0% due to increase in manpower cost (+14.0%) arising from higher headcount and salary increment. Combined with higher finance income (+79.0%) and lower finance cost (-10.0%), core PATMI was higher by 21.2%

Outlook. Management remains cautious for FY20 due to Covid-19 and lockdown in Malaysia (and most other countries) that would severely curtail economics activities from consumption to investment to production of related activities. This in turn will impact Westports’ volume given the overall supply chain disruption. Management guided that it is possible for Westports to have double digit negative growth in light of the protracted pandemic. This quarter saw transhipment volume decline (-14.0% QoQ, -8.0% YoY) after 6 consecutive quarters of strong growth. Key trade lanes, including Intra-Asia route has also started to decline. We believe this trend will likely continue in the near term, even after lockdown is lifted, as consumption activities remain uncertain amid weaker global economy.

Forecast. We cut our earnings by -14.0% in FY20-21 in anticipation of weaker overall throughput volume. FY22 figures are introduced.

Maintain HOLD, TP lowered to RM3.66 (from RM3.92) based on DCFE with assumption of CoE: 7.4%. Although we like Westports for its stable business model (during normal circumstances) as well as stable dividend payout ratio of 75%, the Covid-19 outbreak has raised a near term concern given the potential negative impact to volume.

Source: Hong Leong Investment Bank Research - 14 May 2020