WPRTS recorded a YTD-end May container throughput of 3.95m TEUs, representing a 3% decline YoY, mainly arising from the reshuffling of shipping alliances, which took effect starting April 2017. Overall, we made no changes to our earnings forecasts as we had expected weaker throughput post-reshuffling. Despite so, the company is still expected to continue with its capacity expansion plans with CT8 and CT9. Maintain MARKET PERFORM, with lower TP of RM4.10.

YTD throughput update. WPRTS gave an update on its YTD end- May container throughput volume, which came in at 3.95m TEUs, representing a 3% decline YoY compared to January-May last year. This also implies an April-May container throughput of 1.52m TEUs after deducting 1Q17 throughput of 2.43m TEUS, which we estimate is a c.9% drop YoY compared to the corresponding period last year. The update was given to provide some clarity in light of volumes uncertainty following the shipping alliance reshuffling which took effect in April 2017.

Volume decline from alliance reshuffling. The decline in throughput was largely attributed to the reshuffling of shipping alliance, as the Ocean Three alliance from the old alliances arrangement transitioned into the newly formed Ocean Alliance. Coupled with volume losses from CMA CGM to PSA, and UASC?s merger with Hapag-Lloyd further contributed to volume decline. Likewise, the decline was also due to a higher base seen last year, with 2Q16 being a record quarter for WPRTS, with container throughput recording a 16% YoY growth during the quarter. This was largely due to an increase in ad-hoc calls during the quarter, something which we did not see this time around.

No changes to FY17-18E earnings forecast, as the decline was within our expectations of lower throughput volumes post-reshuffling, with FY17 full-year earnings forecast implying a 5% decline due the lower volumes. Earnings will also be partially lifted by growing gateway volumes, which serves better margins for the company compared to transhipment.

Expansion pipeline still in place. Despite the lower throughput, the company is still expected to continue with its expansion plans. Phase 2 of CT8 is expected to commence operations in mid-2017, while phase 1 of CT9 is expected to be completed by end-2017. All-in, this is expected to increase WPRTS? capacity to 13.5m TEUs by end- 2017, from 12m TEUs currently, with total expected capex set at RM851-149m for FY17-18.

Maintain MARKET PERFORM. We lowered our DDM-derived TP to RM4.10, from RM4.15 previously, after fine-tuning our forward growth rates to account for the lower volumes and ad-hoc calls. Our TP was derived based on an assumption of: (i) 6% WACC, and (ii) terminal growth of 1%, which implies a forward PER of 23x, in-line with its 5- year mean. Our forecasts also imply a forward DPS of 13-14.5 sen for FY17-18E (3.4-3.8% yields), adhering to the group?s 75% dividend pay-out policy.

Risks to our call include: (i) weaker-than-expected throughput volumes, and (ii) higher-than-expected operating costs.

Source: Kenanga Research - 02 Jun 2017