Westports reported 3Q22 core PATAMI of RM170.3m (+2% QoQ, -5% YoY) brought 9M22 core PATAMI to RM502.3m (-5% YoY). This came in within our, but was above consensus forecasts at 79% and 81% respectively. We make no changes to our earnings forecasts, but we raise our COE assumption to 10%, (from 9.5% previously) to reflect the rising rate environment. Consequently our DCF-derived TP is lowered to RM3.54 (from RM3.75 previously). Maintain HOLD on Westports.

Within expectations. Westports reported 3Q22 core PATAMI of RM170.3m (+2% QoQ, -5% YoY) brought 9M22 core PATAMI to RM502.3m (-5% YoY). The results came in within our, but was above consensus forecasts at 79% and 81% respectively. Assuming a normalised tax rate of 24%, we estimate the portion of prosperity tax in 3Q22 to be c.RM19.8m. Separately, container throughput volume for 9M22 stood at 7.5m (-6% YoY) TEUs, making up 72% of our full-year TEU assumption of 10.4m. 9M22 core PATAMI was arrived at after adding back EIs (mainly prosperity tax) amounting to RM37.8m.

Dividend. None declared (3Q21: None). 9M22: 6.91 sen (9M21: 8.5 sen).

QoQ. Operational revenue reported a marginal growth of 1%, owing to stronger revenue contribution from both conventional (+10%) and marine (11%) segment. Despite container volumes growing 4%, container revenue was flat on a QoQ basis, due to the normalising value added services (VAS) revenue. Operational cost saw an overall 2% decline, on the back of lower fuel diesel costs (-9%) and electricity costs (-12%) as well as reefers staying at the yard for shorter period of time. Coupled with stronger profit contribution of RM3.7m from its JV (vs 2Q22 loss of 45k), Westports reported a core PATAMI growth of 2%.

YoY. Operational revenue growth of 4% was achieved on the back of better showing in most of its key segments (Conventional: +34%; Marine: +33%, Rental: +20%). Container segment’s revenue contribution was flat YoY, despite container volumes declining by 2%, as revenue per TEU was higher due to gateway volume growth (+23%). Operational costs jumped 22% mainly due to higher fuel costs (+74%). All in, core PATAMI reported a 5% decline.

YTD. Stronger contribution across all segments (Container: +3%; Conventional: +19%; Marine: +12%, Rental: +9%) have lifted operational revenue by 4%. The strong growth in conventional revenue was supported by more project cargo (new plants being built requiring more machineries) and liquid cargo (due to commissioning of Liquid Bulk Terminal 5 and higher import of petrol and diesel) being handled. Operational costs grew 20% predominantly due to higher fuel costs (+80%). Other income also saw an 88% decline due to absence of insurance reimbursement. As a result, core PATAMI slipped by 5%.

Outlook. Despite increasing recession risk, Westports expects container throughput volumes to register a low single digit growth in FY23f, mainly due to low base effect, as 1Q22 container volumes were affected by (i) supply chain disruptions, and (ii) route changes by shipping liners. As for the concession agreement for Westports 2, management is aiming to ink the agreement in mid-FY23. Outcome of the upcoming general election is also not expected to cause delay to the signing, given that this is under the purview of the civil service. Separately, Westports will be constructing a new terminal, Liquid Bulk Terminal 4A, with construction expected to begin in 4Q22, aiming to complete by end-FY23.

Forecast. Kept unchanged as results were in line.

Maintain HOLD, with a lower TP of RM3.54. In view of the rising rate environment, we revise our CoE assumption upwards to 10% (from 9.5% previously). Reiterate HOLD on Westports.

Source: Hong Leong Investment Bank Research - 7 Nov 2022