Period

1Q15

Actual vs. Expectations

1Q15 net profit of RM120.2m (+10.2%) was in line with expectations, accounting for 23.7% and 22.5% of our in-house and consensus forecasts, respectively.

Dividends

No dividend was declared for the quarter as expected.

Key Results Highlights

YoY, 1Q15 operational revenue grew 11% to RM386.7m on the back of throughput growth at 17.1%, of which transhipment containers jumped 19.6% while gateway (import/export) containers volume increased by 10.9%. Operational gross margin expanded by 2.5ppt to 55.6% and lifted operational gross profit higher by 16.4% to RM215.2m thanks to the lower fuel cost (-25%). However, net profit grew at a slower pace of 10.2% in light of a higher effective tax rate of 24.7% as opposed to 7.5% as the application for Investment Tax Allowance (ITA) had been rejected by government.

QoQ, industry competitiveness was highlighted by throughput volume growing 3.2% but operational revenue was flattish at 0.2% to RM398.7m from a high base of RM384.5m as 4Q is seasonally the strongest quarter. The contribution of CT7 not only elevated the total capacity to 11m TEUs from 9.5m TEUs, but also boosted efficiency as gross margin further expanded to 55.6% (+1.3ppt) which brought gross profit up 2.7% to RM215.2m. Core net profit recorded decline of 20.7% to RM120.2m again due to the normalization of effective tax rate (24.7% vs 1.7%).

Outlook

Volume growth was encouraging, which was complemented by the timely commencement of CT7. However, the expiry of ITA capped net profit growth. We imputed a tax rate of 24%, in line with WPRTS’s guidance, but we understand that the Group is attempting to renegotiate in order to appeal for the ITA.

Moving forward, the Group is looking to further ramp up the capacity to 13.5m TEUs from 11m TEUs currently via the construction of CT8 which started at the beginning of 2015. The expansion is expected to cost RM1.0b in Capex over a span of three years, which we have factored in our earnings model.

As for the port tariff revision, management is confident that the revision will materialise but still unclear with the actual timeline and quantum of the revision. While the prospects had probably excited the market, we do not think it is significant with immediate impact to be derived due to: (i) discount from current charging rate from the tariff ceiling, (ii) locked-in rates in contracts with shipping companies, and (iii) competition in Port Klang with competitor also embarking on expansion.

Change to Forecasts

No changes to our earnings forecast.

Rating

Maintain UNDERPERFORM

Valuation

We keep our Target Price of RM3.29 unchanged, based on DDM valuation (Ke: 7.3%, g: 1.25%). Last closing price implied 30.3x and 8.1x PER and PBV FY15E, respectively, which we think is lofty considering the earnings growth averaging just 3.6% in over the next two years while dividend yield has also dipped below 3% following the strong performance of the share price.

Risks to Our Call

Favourable outcome of ITA application.

Lower-than-expected throughput growth

Source: Kenanga Research - 5 May 2015