Westports’ 1Q21 core PATMI of RM173.5m (-0.2% QoQ, +3% YoY) were within our and consensus expectation. Overall, the earnings were sustained by improved value added services contribution from container segment. For FY21, we are forecasting 3% container growth, inline with management’s guidance of low single digit rate growth. Maintain our forecast and BUY call, with an unchanged TP of RM4.95 based on DCFE with assumption of CoE: 7.4%.

Within expectations. Westports reported 1Q21 core PATMI of RM173.5m (-0.2% QoQ, +3% YoY). The results were within our and consensus expectation at 25% of full year forecast. Recorded 1Q21 container throughput of 2.66m TEUs, representing 25% of our TEU forecast. During the quarter, we excluded a net sum of RM34.8m (EIs mainly from insurance recovery and gain on disposal of PPE) from Westports’s reported net profit of RM208.3m. No dividend was declared.

QoQ. Revenue rose by 5.1% attributed to the higher container revenue (+4.9%) and conventional revenue (+6.1%) driven by higher value added services (VAS), but partially offset by lower volume of container (-4%) and conventional volume (-5%), Reported PATMI was higher by 36.3% mainly from one-off item of insurance recovery. However, after excluding this, core PATMI remained flattish (-0.2%).

YoY. Top-line rose by 8.5% owing to higher container revenue (+9.1%) and conventional revenue (+12.9%), in line with the volume growth of container and conventional by 5.6% and 10.2% respectively. In tandem with higher revenue, core net profit showed an improvement by 3%.

Other updates. For 1Q21, management has spent RM88m capex mainly for new RTG cranes, quay cranes, construction of the new liquid bulk jetty LBT5 and also RM34.5m deposit on the acquisition of Boustead Cruise Centre. The new liquid bulk jetty LBT5 will commence operations by mid-2021. Management is currently evaluating proposals and timing for Sukuk fund raising (possibly next year at earliest) to finance the expansion of CT10 to CT13.

Supply chain disruption. The recent Suez Canal incident may cause congestion in the ports (as experienced by Singapore Ports) as supply chain was disrupted. Nonetheless, we believe Westports is able to weather any possibility of operational loss thanks to its experience gained during the similar situation last year (a congestion problem at the end of 4Q20 due to the pandemic which has eased off as Westports created additional yard space and imposed stricter storage charges). On a brighter note, supply chain disruption experienced last year has spurred more VAS (which include more services for storage and warehouse), and has cushioned the impact of operational loss.

Outlook. We expect 2Q21 to register a strong growth mainly due to lower base effect last year. In fact, management saw earlier April volume growing YoY at a double digit rate. However, we are forecasting 3% container growth for FY21, inline with management’s guidance of low-single digit growth (0-5%) on recovery of global trades.

Forecast. Maintain our forecast as the results were in line.

Maintain BUY, with unchanged TP of RM4.95 based on DCFE with assumption of CoE: 7.4%. We continue to like Westports for its long-term sustainable business model, recurring and yet growing income from ongoing throughput growth at Port Klang, leveraging on its geographical advantages.

Source: Hong Leong Investment Bank Research - 30 Apr 2021