Westports delivered 4Q22 core PATAMI of RM206.2m (+21.1% QoQ, +0.5% YoY), which brought FY22 core PATAMI to RM708.6m (-3.6% YoY). The results came in above both our and consensus estimates, accounting for 112% and 114% of forecasts respectively. The positive surprise was due to stronger-thanexpected contribution from its JV company, Port Klang Cruise Terminal (PKCT) as well as lower-than-expected tax expense (due to investment tax allowances). We raise our FY23-24f forecasts by 1-4% as we take into account (i) lower tax expense, and (ii) higher profit contribution from PKCT, partially offsets by (i) higher utilities, and (ii) manpower costs,. Post earnings revision and rolling over valuation base year to FY23f, our DCF-derived TP is raised to RM3.78 (from RM3.54). Maintain HOLD on Westports.

Above expectations. Westports delivered 4Q22 core PATAMI of RM206.2m (+21.1% QoQ, +0.5% YoY), which brought FY22 core PATAMI to RM708.6m (-3.6% YoY). The results came in above both our and consensus estimates, accounting for 112% and 114% of forecasts respectively. The positive surprise was due to strongerthan-expected contribution from its JV company, Port Klang Cruise Terminal (PKCT) as well as lower-than-expected tax expense (due to investment tax allowances). On a side note, container throughput volume for FY22 stood at 10.05m TEUs (-3% YoY), achieving 97% of our full year TEU forecasts of 10.4m. 4Q22 core PATAMI was arrived at after stripping out EIs (mainly reversal of impairment in PKCT) amounting to RM28.8m. We estimate the Prosperity Tax amount incurred in FY22 to be c.RM69m.

Dividend. Declared dividend of 7.46 sen, going ex on 8 Feb 2023 (4Q21: 9.28 sen). FY22: 14.37 sen (FY21: 17.78 sen).

QoQ. Despite both marine (+5%) and rental (+8.3%) revenue reporting growth, Westports’ operational revenue was flat QoQ, as the positives were neutralised by lower conventional revenue (-14%). Operational costs also eased 2.4%, mainly on lower fuel costs (-11.1%) as diesel cost moderates. Owing to investment tax allowance, tax expenses declined substantially by 77.9%, resulting in core PATAMI grew by 21.1%.

YoY. Operational revenue grew 3.4% on stronger marine and rental revenues. The growth in marine revenue was supported by more container vessels berthing (+34%). However, given the lesser boxes handled per vessel (-22%), container revenue was flat YoY. Operational costs increased by 17.1% due to the higher fuel cost and minimum wage revision. As a result, core PATAMI was flat (+0.5%) despite lower tax expense (-61.6%) and improved contribution from PKCT (4Q22 c. RM3m vs 4Q21 loss of RM403k).

YTD. Improved contribution across all segments (Container: +2.2%; Conventional: +15.7%; Marine: +18.8%, Rental: +14%) have boosted operational revenue by 3.9%. The encouraging growth in conventional revenue was partly due to the commissioning of Liquid Bulk Terminal 5, resulting in more non-bunker liquid bulk handled. Higher operational costs (+20%) was due to the same reason mentioned in YoY para. All in, core PATAMI declined by 3.6%.

Outlook. Despite China being one of Malaysia’s largest trading partner, the China reopening is not expected to lead to a strong boost in TEU volumes as the decline in transhipment volumes were predominantly due to slowdown in purchases from the West, rather than borders closure in China. Staying cognisant of the recession risk, Westports expect throughput volumes to register low single digit growth in FY23f. Separately, utilities costs are also expected to increase by 30-40% in 1H23 (owing to the continued implementation of Imbalance Cost Pass-Through (ICPT) mechanism), whereas manpower cost will likely grow by c.5% in FY23 as Westports revises its internal minimum wage further to maintain a gap with the government-imposed minimum wage. To mitigate the rising costs, we understand that Westports is engaging the port authority for a potential review in conventional tariff charges.

Forecast. We raise our FY23-24f forecasts by 1-4% as we take into account (i) lower tax expense, and (ii) higher profit contribution from PKCT, partially offsets by (i) higher utilities, and (ii) manpower costs,

Maintain HOLD, with a higher TP of RM3.78. Post earnings revision and rolling over valuation base year to FY23f, our DCF-derived TP is raised to RM3.78 (from RM3.54). Maintain HOLD on Westports.

Source: Hong Leong Investment Bank Research - 25 Jan 2023