Westports’ 2Q22 core PATAMI of RM167.1m (+1% QoQ, -6% YoY), brought 1H22’s sum to RM332.1m (-5% YoY) which was within both our (48%) and consensus estimates (51%). Despite results coming in within expectations, we reduce our FY22-24f earnings forecasts by 4-8%, as we lower our TEU growth assumption and at the same time, raise our fuel costs assumption. The adjustment is to factor in weaker consumption caused by inflation, as well as rising fuel costs. Post earnings adjustment, our DCFE-derived TP is lowered to RM3.75 (from RM4.27), with a higher CoE assumption of 9.5% (from 8.5%), given the rising rate environment. Reiterate HOLD on Westports.

Inline with expectations. Westports reported 2Q22 core PATAMI of RM167.1m (+1% QoQ, -6% YoY), bringing 1H22’s sum to RM332.1m (-5% YoY). The results were within both our and consensus estimates, at 48% and 51% respectively. Container throughput for 1H22 stood at 4.9m TEUs (-8% YoY), accounting for 46% of our full-year TEU forecasts of 10.6m. 1H22 core PATAMI was arrived at after adding back EIs (mainly comprises of prosperity tax) amounting to RM17.9m.

Dividend. Declared dividend of 6.91 sen, going ex on 11 Aug (2Q21: 8.5 sen). 1H22: 6.91 sen (2H21: 8.5 sen).

QoQ. Operational revenue was down by 1%, owing to weaker container revenue, as the easing of yard congestion has resulted in lower value added services (VAS) revenue. Operational costs were higher by 13%, predominantly due to higher fuel costs as Westports purchases diesel at unsubsidised prices. Higher electricity cost of 12% also contributed to the cost increase, due to handling of more reefers and the ICPT by Tenaga. Core PATAMI however, showed marginal improvement of 1% due to an adjustment made in the overprovision of tax in 2Q (amounting to RM17m).

YoY. Operational revenue growth of 4% was on the back of better contribution across all segments. Despite throughput volumes falling 6%, container revenue still charted a 3% growth due to higher VAS revenue and also better revenue per TEU. Operational costs rose 25% due to fuel costs surging by 111%. All in, core PATAMI fell 6%.

YTD. Topline grew 4% owing to better showing across all segments. Conventional revenue grew the strongest, by 12%, due to the commencement of liquid bulk operations in 1H22. Operational costs was 20% higher, mainly due to the same reason mentioned in the YoY paragraph. Core PATAMI fell 5% as a result of cost inflation.

Outlook. We maintain our cautious stance on Westports, as we reckon consumers’ spending power would be adversely impacted by inflation, resulting in overall weaker consumption that would in turn hurt global trade volumes. Westports should also see revenue contribution from VAS continue to taper off, as yard congestion eases. Separately, with Port Klang Cruise Terminal (PKCT) now allowed to operate (ahead of the earlier targeted timeline of November), we think that PKCT could potentially achieve breakeven by the end of CY22.

Forecast. Despite results coming in within expectations, we reduce our FY22-24f earnings forecasts by 4-8%, as we lower our TEU growth assumption to 0% (from 3% previously) for FY22, as well as raising our fuel costs assumption.

Maintain HOLD, with a lower TP of RM3.75. Post earnings adjustment, our DCFE derived TP is lowered to RM3.75 (from RM4.27), with a higher CoE assumption of 9.5% (from 8.5%), given the rising rate environment. Reiterate HOLD.

Source: Hong Leong Investment Bank Research - 29 Jul 2022