Westports reported a solid set of results – 2018 core pretax profit grew by 3.6% yoy to RM701m on the back of higher container volume (+5.7% yoy), driven by an 18% increase in gateway throughput. Nonetheless, 2018 core net profit fell by 17% yoy due to an absence of investment tax allowance. In tandem, 2018 dividend per share came in 17% lower at 11.73 sen. Overall, the results were within consensus forecasts but 4% ahead of our expectations due to strong throughput and lower operating cost in 4Q18. We raise our 2019-20 EPS forecasts by 4% after incorporating higher growth in gateway throughput and lift our DCF-derived price target to RM4.10 (from RM4.01). Maintain HOLD. At 20x 2019E PER / 3.8% 2019E yield, Westports’ valuation is within its 4-year average and looks fair.

Higher 2018 Pretax Profit of RM701m (+4% Yoy), Above Expectations

Westports reported a solid set of results – 2018 pretax profit grew by 3.6% yoy to RM701m on the back of higher container volume (+5.7% yoy). 2018 core net profit was, however, lower at RM535m (-17% yoy) due to lower taxation in the prior year arising from the claim of investment tax allowance. Tracking the lower core net profit, 2018 dividend per share fell by 18% yoy to 11.73 sen. Overall, the 2018 core net profit were within market expectations but 4% above our forecast due to higher-than-expected gateway container volume in 4Q18 and lower-thanexpected operating costs (ie. manpower cost).

Sequentially, 4Q18 Core Net Profit Grew by 9% to RM151m

Operationally, Westports had a strong 4Q18 with 5.3% qoq growth in container volume attributable to seasonality and the early arrival of Chinese New Year in the first week of February 2019 (instead of mid / late February). The higher 4Q18 container volume, coupled with lower operating costs (ie. manpower), translated to 9% growth in 4Q18 core net profit.

Management Expects 3-8% Container Volume Growth in 2019

Moving into 2019, management maintained its earlier guidance of 3-8% throughput growth. While the ongoing trade tension between the US and China has had minimal impact on Westports’ throughput, the tension, if intensified and / or prolonged, could impact its 2019 volume growth. Elsewhere, management does not expect further delays in the container tariff revision (+15%) scheduled for 1 March 2019. Lastly, management aims to complete the detailed study on the port expansion (Westports 2) by the end of 1Q 2019.

Source: Affin Hwang Research - 31 Jan 2019