FY16 core earnings of RM616.8m came in within both our (97%) and consensus (100%) expectations. FY16 NDPS of 14.0 sen also met expectations. We expect capacity of 13.5-14.0m TEUs in FY17-18E upon completion of CT8 and CT9. Maintain FY17E NP of RM699.6m, and introduce FY18E NP of RM704.7m. Maintain MARKET PERFORM but lower our DDM-derived TP to RM4.33 (from RM4.49) as we increase our risk-free rate to 4.10% (from 3.60%).

FY16 core net profit (CNP*) of RM616.8m came in within our and consensus expectations at 97% and 100%, respectively. FY16 core net profit has been adjusted for a one-off investment gain in 1Q16 amounting to RM20.3m from the disposal of investment securities. WPRTS declared a second interim dividend of 6.70 sen/share bringing FY16 NDPS to 14.0 sen, representing a 75% pay-out ratio of NP, which is in line with our expectation of 100%.

Results highlight. YoY-Ytd, operational revenue grew 14% on positive container throughput growth of 10% to 9.95m TEUs primarily in transhipment volume (+13%) from Intra-Asia and Asia-Europe trade lanes, and gateway volume (+3%). As a result, CNP increased by 21% on the back of slightly lower finance cost (-2%) and lower effective tax rate to 16% (from 22%) upon the reinstatement of the Investment Tax Allowance (ITA) beginning FY16 as WPRTS has been ramping up construction works at CT8. QoQ, operational revenue was up by 4% on improved container throughput growth of 2.8%, but PBT declined 2.0% on the back of higher: (i) operational cost (+6.9%), (ii) administrative expense (+25.7%) from impairments related to Hanjin Shipping line, and (iii) other expenses (+32.6%) from write-off of obsolete property plant and equipment of RM13m. However, the lower effective tax rates helped recover the effect to bottom-line which increased by 2.6%.

Outlook. The Group 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 as we expect 13.5-14.0m TEUs in FY17-18E. The Group is expecting capex of RM851-149m in FY17-18E which will be funded by internally generated funds and short-term borrowings. Lastly, we are comfortable and maintain our volume growth estimates of 4.5% in FY17 and introduce modest FY18 growth of 3.0% pending further updates on shipping alliances strategies, especially for UASC, while the Group expects similar port calls from existing clients of the OCEAN Alliance.

Maintain FY17E earnings and introduce FY18E. We maintain FY17E NP of RM699.6m, and introduce FY18E NP of RM704.7m. Our FY17-18E NDPS are 15.4-15.5 sen based on a 75% pay-out ratio, translating to 3.7-3.8% yield.

We maintain MARKET PERFORM but lower TP to RM4.33 (from RM4.49). Our DDM-derived Target Price is lowered to RM4.33 (from RM4.49) based on a higher discount rate of 6.1% as we increase our risk-free rate assumption closer to current level of 4.1% (from 3.6%). Our TP implies a Fwd. PER of 21.1x, which is trading at +0.2SD or slightly 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 - 13 Feb 2017