9M17 results came in within expectations, in-line with a poorer throughput outlook for FY17 due to the reshuffling of shipping alliances. Moving forward, we are anticipating marginal throughput growth over the next few years, with gateway to have higher contribution towards container throughput mix. Likewise, expansion plans for CT8 and CT9 are still in line, but we do not expect any other expansions beyond that at this juncture. Maintain MARKET PERFORM with an unchanged target price of RM3.70.

Within expectations. 9M17 core net profits (CNP) of RM441.5m came in within expectations at 74%/75% of our/consensus FY17 earnings forecasts. No dividends were declared, as expected.

Results buoyed by gateway throughput growth. 3Q17 CNP dropped slightly by 3% YoY to RM150.8m from RM155.3m in 3Q16, which is somewhat commendable, considering total container throughput saw a 14% decline YoY. Transhipment saw a staggering drop by 23% on the back of shipping alliances reshuffling, mitigated by improved gateway throughput by 14%. Gateway typically commands higher fees per TEU, thereby lifting earnings and cushioning the blow from the transhipment side. Cumulatively YTD, 9M17 CNP deteriorated 5% from RM465.9m in 9M16, in tandem with a 4% decline in operating revenue on the back of lower container throughput by 8%.

Sequentially, 3Q17 came in flattish QoQ, improving a mere 1% from RM149.8m in 2Q17. Operational revenue stayed relatively unchanged at RM421m over the two quarters, but earnings were helped by slightly lower operational cost of sales by 2%. Container throughput declined by 4% QoQ, mainly from transhipment (-7%), offset by growth in gateway (1.4%).

Container throughput outlook. While throughput outlook for the remainder of FY17 is widely expected to remain weak following the reshuffling of shipping alliances, we maintain our view that this should serve as a new low base from which throughput could grow over the coming years, with gateway to potentially increase its contribution towards container throughput mix. Meanwhile, progress for CT8 and CT9 expansion plans are still in-line, with capacity expected to increase to 13.5m TEUs per year by FY18, from current 12.0m TEUs per year. Total allocated capex for the expansions are set at RM851-149m for FY17-18. At current juncture, we do not expect WPRTS to expand beyond CT9 in the coming 2-3 years, despite already obtaining an approval-in-principle to expand container terminal facilities from CT10 to CT19, due to the lower throughput suffered in recent times, coupled with the increased capacity from CT8 and CT9 expansions.

Maintain MARKET PERFORM. With outlook mostly remaining intact, we maintain our MARKET PERFORM rating on WPRTS. Likewise, we kept our DDM-derived TP unchanged at RM3.70, based on the assumption of; (i) 6% WACC, (ii) 1% terminal growth, and (ii) dividend payout ratio kept unchanged at 75%. Meanwhile, our FY18E earnings were also marginally tweaked -2% after some fine-tuning to our finance cost assumptions.

Risk to our call include: (i) lower-than-expected growth in gateway container throughput, (ii) slower-than-expected recovery in transhipment container throughput, and (iii) higher-than-expected effective tax rates.

Source: Kenanga Research - 13 Nov 2017