Westports’ revenue increased by 4% yoy, but net profit was flat in 3Q17. The result was within expectations. Net profit of RM441m (-9% yoy) in 9M17 comprises 76% of consensus and our full-year estimates. Transhipment volume YTD was down 13% yoy due to the changes in global shipping alliances. But gateway volume grew healthily at 8% yoy. The new CT8 wharf was completed in August 2017 and CT9 Phase 1 will be completed in December 2017. Maintain HOLD with TP of RM3.95.

Flat Earnings

Revenue grew 4% yoy to RM492m in 3Q17. However, operating revenue (excluding non-core construction revenue) declined 6% yoy to RM421m in 3Q17. This was mainly due to lower transhipment volume resulting from changes in global shipping alliances and M&A among container shipping lines. Westports benefited from the strong growth in exports (+9% yoy) and imports (+5% yoy), resulting in an 8% yoy increase in gateway volume for 9M17. Although revenue grew 4% yoy in 9M17, net profit fell 9% yoy due to lower EBITDA margin. This note marks a transfer of analyst coverage.

Intra-Asia Trade Lanes Saw Strong Growth

The group reported that the Intra-Asia trade segment continued to grow strongly (+7.5% yoy in 9M17), driven by robust economic growth in Asia. Intra-Asia now constitutes 56% of the company’s total containers handled. Nevertheless, the Asia-Europe trade segment fell 21% yoy in 9M17 due to changes in membership of global shipping alliances. Because of the lower volume, berth occupancy at the terminal is lower. But productivity level has increased, resulting in lower waiting time.

Approval-in-principle to Expand Container Terminal Facilities

New CT8 was completed in August 2017 and CT9 Phase 1 will complete in December 2017. With the added wharf and new fleet of Terminal Operating Equipment at CT8, Westports’ total container handling capacity has increased to 13m TEUs p.a. It has also received an approval-in-principle for proposed expansion of container terminal facilities under CT10-19.

Maintain HOLD

Current FY18E PER of 22x is not attractive, considering that we only expect an earnings recovery back to FY16 level in FY19E. We reiterate our HOLD call with a 12M DCF-based TP of RM3.95, potential upside of 8%. Key upside/downside risks include (i) higher/lower exports resulting in higher/lower gateway volume and (ii) lower/higher fuel costs.

Source: Affin Hwang Research - 13 Nov 2017