9M16 core earnings of RM461.8m came in within both our (72%) and consensus (75%) expectations. No dividends, as expected. WPRTS is expediting capex plans for CT9 with Phase 1 to be completed by Dec 2017. As such, we lower FY16E (-1.2%) and increase FY17E (+1.0%) earnings to RM638.6-699.6m to account for higher ITA in FY17. Maintain MARKET PERFORM and our DDM-derived TP to RM4.49based on a discount rate of 5.9% and risk-free rate of 3.60%.

9M16 core net profit (CNP*) of RM461.8m came in within our and consensus expectations at 72% and 75%, respectively. No dividends, as expected.

Results highlight. YoY-Ytd, operational revenue grew 15% on positive throughput growth of 10% to 7.38m TEUs mostly from transhipment volume (+15%) from Intra-Asia and Asia-Europe trade lanes, and gateway volume (+1%) mostly from exports. CNP also increased by 19% on the back of slightly lower finance cost (-3%) and lower effective tax rate to 17.0% (from 23.1%) upon the reinstatement of the Investment Tax Allowance (ITA) beginning FY16. QoQ, top line was flattish, but PBT declined by 7.5% on the back of: (i) higher operational cost (+3.4%), (ii) administrative expense (+113%) from impairments related to Hanjin Shipping line, and (iii) other expenses (+4.6%). However, slightly lower effective tax rates negated the negative impact to bottomline resulting in 5.5% decline.

Outlook. The group is expediting its capex plans for CT9 and expects to complete Phase 1 of CT9 by Dec 2017, while plans for the completion of CT8 by mid-2017 are on track. All in, no changes to capacity which is expected to increase to 13.5m TEUs by end-FY17 post the completion of CT8, while additional capacity from CT9 will be realised mostly in FY18. As such, we revise our capex assumptions to RM556-753m in FY16-17 (from RM750-250m) which will be funded by internally generated funds and short-term borrowings. As the Investment Tax Allowance (ITA) was renewed for three years (2015-2017), we are adjusting FY16-17E tax rate to 18%-12% from (17- 15%) after accounting for additional capex incurred in FY17 from CT9. Lastly, we are comfortable with our volume growth estimates of 10.5- 4.2% in FY16-17E pending further updates on shipping alliances strategies, especially for UASC, while the Group expects similar port calls from existing clients of the OCEAN Alliance.

We lower FY16E by 1.2% and increase FY17E earnings by 1.0%. Post housekeeping, we lower FY16E by 1.2% and increase FY17E earnings by 1.0% after accounting for: (i) higher effective tax rates and lower gateway fee assumptions YoY in FY16, and (ii) lower effective tax rates in FY17. All in, we are expecting RM638.6-699.6m in FY16-17E.

We maintain MARKET PERFORM and TP of RM4.49. Our DDMderived Target Price of RM4.49 is based on a discount rate of 5.9% and risk-free rate assumption closer to current level of 3.6%. Our TP implies a Fwd. PER of 22.1x, which is trading at +0.3SD above its 3-year historical average. Risks to our call include lower-than-expected throughput growth and higher-than-expected operating costs

Source: Kenanga Research - 11 Nov 2016