• PKA and government agencies have taken several measures to resolve the congestion at Port Klang.
• While these measures should ease congestion, we only expect the issue to be resolved in March after the container lines reduce their rollover cargoes and reposition the empty container boxes during the Lunar New Year period, when exports from China are lower.
• We expect these new measures (to ease congestion) to have an unintended, positive impact on Westports’ profitability. However, these are likely short term and not significant. Maintain HOLD with an unchanged PT of RM4.15.

Record operating revenue lifts 3Q20 core net profit to RM204m (+28% yoy)

Taking a cue from Port Klang Authority (PKA)’s statistics and Westports management guidance, we forecast Westports’ 2020 container throughput at 10.5m TEUs, a 3% decline yoy due to lower transshipment volume, partly cushioned by higher gateway throughput. We expect its 4Q20 container throughput to decline by 6% qoq due to lower transshipment of empty container boxes and lower operating efficiencies in December 2020, as a result of the port congestion.

Congestion should be resolve in March; minor revenue uplift for Westports

PKA and a few government agencies have taken several measures to resolve the congestion at Port Klang. We expect these measures to ease the congestion but full resolve may only materialize in March – after the container lines reduce the rollover container cargoes and reposition the empty container boxes in February when China lowers its exports during the Lunar New Year festivities. Westports has implemented several measures to ease the congestion, including adding storage space and withdrawal of free storage period for exporters. While these measures mainly aim to resolve the congestion issue, they should have an unintended, minor uplift to Westports’ profitability.

Maintain HOLD With An Unchanged Price Target of RM4.15

We do not expect the profit uplift from these new charges to be material and sustainable. Hence, we maintain our earnings forecasts for Westports, our HOLD rating and DCFderived price target of RM4.15. While we continue to like Westports for its strategically located ports, strong management and well-conceived expansion plan, the protracted delay in securing concession agreements may cap its upside potential. At 22x 2021E PER, Westports is trading close to its 7-year average PER of 21.3x and looks fair to us.

Source: Affin Hwang Research - 11 Jan 2021