Westports’ 9M20 core PATMI of RM513.5m (+10.4% YoY) were above our and consensus forecast. The outperformance was driven by higher-than-expected gateway throughput volumes as well as conventional volume. We increase our earnings by 9% for FY20-22 as we reckon that Westports will still register resilient earnings in 4Q20. Maintain BUY, with a higher of TP of RM4.64 (from RM3.98). With the worst likely over, we reckon that Westports is poised to ride on the global trade recovery inline with the reopening of economies.

Beat expectations. Westports reported 3Q20 core PATMI of RM203.9m (+44.5% QoQ, +28.2% YoY), which brings 9M20 core PATMI to RM513.5m (+10.4% YoY). The results were above our and consensus expectation, forming 83% and 85% of full year forecast respectively, driven by higher-than-expected gateway throughput volumes as well as conventional volumes. No dividend declared as it is usually payable semiannually.

QoQ. Revenue increased by 23.7% contributing to the increase in core earnings by 44.5%, due to higher container (24.2%) and conventional revenue (36.4%). Higher container revenue was driven by higher volumes from both transhipment (+30.8%) and gateway (25.6%) from the rebound of 2Q20 Covid-19 induced slowdown; transhipment recovery reflected some repositioning of empty containers while gateway growth was notably from paper, rubber-related and fertilizer. Conventional revenue increased primarily from higher dry bulk volumes.

YoY. Top-line was up by 8.9% attributable to higher container revenue (+10.5%) from higher volumes of getaway (+12%) as well as increase in tariff. There was an increase in volumes for conventional by 14.9% owing to higher bunker and palm-oil related products; however, conventional revenue was flattish (+0%) due to the value per tonne of bunker and palm-oil were lower. Overall, core PATMI was up by 28.2% in tandem with higher revenue as well as lower operational cost (-7%) from the lower fuel cost (- 22.2%).

YTD. Revenue inched up by 2.6% from higher container revenue (+3.9%) despite registering lower container volumes (-3.9%) due to higher gateway volumes (+4.9%), increase in tariff and improved value added services revenue. However, core PATMI rose by 10.4% from lower fuel costs (-25.6%) as well as lower finance cost (-15.3%).

Outlook. Management guided that the container volume strong rebound in 3Q20 (+28.9% QoQ; +6.1% YoY) has reduced their expectation of overall volume reduction in FY20 potentially to only a single-rate digit of decline. While we note that global consumption activity remains uncertain amid worsening Covid-19 count worldwide, we believe the worst is over for Westports and the company should register resilient earnings in 4Q20 driven by the festive season such as Christmas and New Year, and frontloading activity before Chinese New Year. Furthermore, management also shared that there’s a slight growth in volume for Oct as well as flattish Nov number. For FY21, management is guiding towards low-single digit growth (0-5%) for container volume on recovery of global trades.

Forecast. We increase our earnings by 9% for FY20-22 following a stronger-thanexpected result.

Maintain BUY, with a higher TP of RM4.64 (from RM3.98) based on DCFE with assumption of CoE: 7.4%. With the worst likely over, we reckon that Westports is poised to ride on the global trade recovery inline with the reopening of economies.

Source: Hong Leong Investment Bank Research - 27 Nov 2020