Westports’ 1H21 core PATMI of RM350.6m (+13.3%) were within our and consensus expectation. Overall, the improvement was due to 2Q20’s low-base. 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 2Q21 core PATMI of RM177.1m (+2.1% QoQ, +25.6% YoY), which brought 1H21’s sum to RM350.6m (+13.3%). The results were within our and consensus expectation at 49% of full year forecast. Recorded 1H21 container throughput of 5.3m TEUs (+10.4%), representing 49% of our TEU forecast. For 1H21, we excluded a net sum of RM35.7m (EIs mainly from insurance recovery and gain on disposal of PPE) from Westports’s reported net profit of RM386.3m. Declared first interim single-tier dividend of 8.50 sen per share going ex on 16 Aug 2021.

QoQ. Revenue stayed flattish at RM489m (-1.4%). Operational cost was higher by 3.8% from higher fuel cost by +7.7% (higher MOPS price) and higher electricity cost by 20%. Nonetheless, these were more than offset by lower tax expense by 11.7%, resulting to core net profit inching up by 2.1%.

YoY/YTD. Top-line rose by 20.7%/14.3% owing to 2Q20’s low-base. Container revenue increased by 20.8%/14.6% mainly due to higher terminal handling charges and value added services (VAS), as container volume grew by 16.2%/10.4%. Meanwhile, conventional revenue increased by 45.5%/26.4% with higher conventional volume by 26.6%/17.4% from higher product mix. In turn, core net profit showed an improvement by 25.6%/13.3%.

Other updates. For 1H21, management has spent RM119m capex mainly for new RTG cranes, quay cranes, construction of the new liquid bulk jetty LBT5 & 19 acres container yard. Westports’ net gearing has decreased to 0.14x in 2Q21 (from 0.22x in 1Q21) as the group continued to record strong cash flows, which was used to pare down borrowings during the quarter.

Port congestion. Presently, since some of the countries are under lockdown measures, Westports is experiencing congestion at ports with current yard utilisation at slightly more than 100% (vs 90% average during 2Q21). Management assured that the congestion was not as bad as it was in Dec 2020 (120% yard utilisation) which lasted for about 1 month. 19 acres additional yard has been designated to ease off the congestion problem. However, we remain cautious if the congestion continues to prolong as the margins could be pressured with decrease in yard efficiency and increase in labour costs couple with the higher fuel costs. On a brighter note, port congestion experienced last year has spurred more VAS (which include more services for storage and warehouse), and has partly cushioned the impact of operational loss.

Outlook. We expect 3Q21 quarter to be weaker YoY due to higher base SPLY from “revenge spending” when the country transitioned from MCO1.0 to RMCO. The 10.4% YoY container growth in 1H21 are expected to be partially offset by weaker 2H21, and overall should still be within management’s guidance of low-single digit growth (0-5%).

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%. Despite the near term headwinds from the port congestion, 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. Furthermore, we believe Westports is able to weather any possibility of operational loss from the port congestion thanks to its experience gained during the similar situation last year. At current price, valuation are undemanding as the stock is trading at 18x-19.5x FY21-23 P/E (5 year mean: 21.9x) and 3.9x-4.5x FY21-23 P/B (5 years mean: 5.8x), supported by decent 3.6% FY21 dividend yield.

Source: Hong Leong Investment Bank Research - 2 Aug 2021