Westports reported a modest set of results - 9M18 EBITDA grew by 2% on higher container volume (+2% yoy) but core net profit slipped by 11% to RM384m due to higher depreciation, finance costs and taxation. The results are within market and our expectations. Notably, Westports handled 2.45m TEUs of containers in 3Q18 (+9% qoq, +14% yoy) – highest since 4Q16 and management expects 2019 throughput volume to grow by 3-8%. We tweaked our 2018-20E EPS forecasts by 0.1-2% after incorporating MFRS 15 impact and 9M18 results. Maintain HOLD with an unchanged DCF-derived price target of RM4.01.

9M18 Core Net Profit Slipped by 11%, Within Expectations

Westports reported higher 9M18 EBITDA of RM724m (+2% yoy) on the back of higher container volume (+2%). The group’s core net profit however fell by 11% yoy to RM384m on higher depreciation and finance costs following the completion of CT8 and CT9 facilities expansion in 2017. Overall, the results are within market and our expectations – 9M18 core net profit accounted for 74% of street and 76% our full year forecasts.

Sequentially, Core Net Profit Grew by 16% on Higher Container Volume

Sequentially, Westports’ 3Q18 core net profit grew by 16% to RM139m on the back of higher revenue (+6% qoq), attributable to higher container volume of 2.45m TEUs (+9% qoq) – transhipment volume grew by 10% qoq to 1.43m TEUs while gateway volume was 6% higher at 0.81m TEUs.

Management Expect 2019 Throughput Volume to Grow by 3-8%

Management gave a modest 2019 throughput growth guidance of 3-8%, citing the trade tension between US and China. Elsewhere, management does not expect further delays in the container tariff revision. Recall that Port Klang Authority (PKA) has deferred the impending container tariff revision by 6 months to 1 March 2019 instead of 1 September 2018 to allow port users and other industry players to adapt and stabilise their business following the implementation of the sales and service tax in 1 September 2018.

Tweaking 2018-20E EPS by 0.1-2%

We have raised our 2018-20E EPS by 0.1-2%, incorporating MFRS 15 impact and latest financial results. To recap, Westports has adopted the MFRS 15 and now recognises revenue net of rebates, resulting in lower revenue, lower operating costs and higher EBITDA margin. The net impact (from the accounting changes) to EBITDA is however minimal.

Maintain HOLD with an unchanged DCF-derived TP of RM4.01

We maintain our HOLD rating with an unchanged DCF-derived 12-month target price of RM4.01. At 21x 2019E PER, Westports’ valuation is within its historical trading range. The prospects of Westports 2 (under feasibility study) should draw interest, but it may be dampened by lingering concerns over global trade concerns. Key downside risks include (i) lower exports growth and (ii) higher fuel costs. Upside risk include (i) hostility over global trade unwinding and (ii) robust transhipment volume growth. This note marks a transfer of coverage.

Source: Affin Hwang Research - 12 Nov 2018