Westports reported a solid set of results – 6M19 core net profit grew by 25% yoy to RM307m on the back of higher revenue (+12%), driven by a 17% increase in container volumes. Management now expects its 2019 container volumes to grow by high single digits (previously 3-5%). Overall, the earnings were within consensus and our forecasts, despite the higher-than-expected container volumes. We are tweaking our FY19-21E earnings forecasts by 0.1-1.4% and revising our DCF-derived price target to RM4.22 (from RM4.20). We downgrade Westports to HOLD from BUY given the lower share-price upside following its recent run. At 20x 2020E PER, Westports now trades near its 5-year average forward PER of 21x, which looks fair.

Strong Volume Drives Profit; Earnings Were Within Expectations

Westports reported a solid set of results – 6M19 core net profit grew by 25.4% yoy to RM306.5m on the back of higher revenue (+11.6% yoy), driven by: (i) higher transhipment volume of 3.54m TEUs (+22% yoy); (ii) stronger gateway volume (+8% to 1.72m TEUs); and (iii) tariff revision for gateway containers (+13%) in March 2019. The higher revenue and flattish costs translated into higher core net profit and, in tandem, higher DPS of 6.74 sen (+25% yoy). Overall, the earnings were within the market’s and our expectations. Westports’ 6M19 core net profit accounts for 49-50% of street and our full-year profit forecasts.

2Q19 Earnings Were Seasonally Stronger

Westports’ 2Q19 core net profit grew by 19% qoq to RM166.3m due to seasonality (1Q19: shorter number of working days and lower volume post festive season). Moving into 2H19, we expect 2H19 earnings and container volume growth (both yoy and qoq) to be relatively muted due to a higher base effect.

Management Raised 2019 Volume Growth Guidance to High Single Digit

Management attributed the strong 6M19 container volume gains (+17% yoy) to higher port calls by Ocean Alliance, market-share gains, organic volume growth and the low base effect in 6M18. Management has raised it 2019 volume growth guidance to “high single digit”, from 3-5% previously. Notwithstanding the strong 6M19 growth, management fell short of raising its growth guidance to double digits, citing “lots of volatility in the market”.

Tweaking 2019-21 EPS Forecasts by 0.1-1.4%; Downgrading to HOLD

We are tweaking our 2019-21E EPS forecasts by 0.1-1.4% after incorporating higher 2019 container volume growth of 11%, partly offset by downward revisions in: (i) revenue from the conventional segment; (ii) value-added services revenue; and (iii) blended container tariff. In tandem, we are revising our DCF-derived price target to RM4.22 (from RM4.20), offering an 8% upside to Westports’ current share price.

We downgrade our rating to HOLD (from Buy), in view of the lower shareprice upside following its recent run and uncertainty in the global economy. At a 20x 2020E PER, Westports is trading close to its 5-year average forward PER of 21x, which looks fair to us. Upside risks are strong, sustained growth in container volume and earnings; downside risks include an economic slowdown that drags container volume and an unexpected increase in operating costs.

Source: Affin Hwang Research - 29 Jul 2019