Within expectations. 1H17 core net profits (CNP) of RM290.7m came in within expectations at 49% and 48% of our and consensus FY17 estimates, respectively. Interim dividend per share of 6.4 sen, vs. 7.3 sen in 1H16, was also within expectations.

Lower container throughput throughout. 2Q17 saw a drop in CNP by 6.3% YoY to RM149.8m, from RM159.9m in 2Q16, in tandem with lower revenue contributions from container shipments by 6.5%. This follows a lower container throughput at 2.23m TEUs in 2Q17 – representing a 10.8% decline from 2.5m TEUs in 2Q16. The decline mainly came from lower transhipment volume, arising from the shipping alliances reshuffling, coupled with volume losses from CMA CGM and UASC. Notably, west-bound trade lanes saw heavy throughput deterioration, especially the Asia-Africa (-65.9%) and Asia-Europe (-26.3%) routes.

YTD-wise, 1H17 CNP declined 6.4% YoY to RM290.7m, from RM310.6m in 1H16. Similarly, this was caused by lower throughput volume, with container throughput declining 5.1%, coupled with higher fuel costs, especially in 1Q17. Gateway throughput saw positive improvements with a 4.8% growth during these six months. However, this was still insufficient to offset the large decline in transhipment throughput of 17.4% in 1H17.

Sequentially helped by improved tax rates. Despite decline in operational revenue by 4% QoQ from poorer container throughput, bottom-line saw an improvement sequentially by 6.3%, from RM140.9m in 1Q17. This was partly thanks to a lower effective tax rate of 14.7%, as compared to the preceding quarter of 21.3%, from the investment tax allowance arising from the on-going terminal expansion capex requirements. As a result, numbers were poorer on the PBT-level, having declined 2.6% to RM174.4m from RM179.1m.

Expansion plans all still in-place. Despite overall poorer container throughput outlook, WPRTS is still going forth with all its expansion plans. Phase 2 of CT8 was recently completed this month and is expected to come operational soon. Meanwhile, Phase 1 of CT9 is still in progress, with an expected completion set at the end of the year. Overall, this is expected to increase capacity to 13.5m TEUs per year, from the 12m TEUs per year as at end-FY16, with allocated capex set at RM851-149m for FY17-18.

Maintain MARKET PERFORM, with lower DDM-derived TP of RM3.70, from RM4.10 previously. While we made no changes to our earnings forecasts, our WACC assumption was revised to 6.5%, from 6.0% previously, after updating our CAPM assumption inputs to better reflect current levels. With the overall poorer throughput outlook, we opine that FY17 could be a new base for WPRTS to organically grow. Forward earnings in FY18E and beyond will mainly be underpinned by: (i) expected growth from gateway shipments, and (ii) gradual recovery in transhipment throughput as the business environment with the new shipping alliances stabilises.

Risks to our call include: (i) higher-than-expected container throughput growth, and (ii) lower-than-forecasted effective tax rate.

Source: Kenanga Research - 21 Jul 2017