WPRTS recorded FY17 container throughput of 9m TEUs which declined 10% YoY, in-line with our expectation of a poorer throughput outlook for the year. The decline was mainly due to drop in transhipment, while cushioned by strong growth in the gateway. Meanwhile, full compliance of MFRS 15 effective FY18 should be earnings-neutral. No changes made to our FY17-18E earnings forecasts. Maintain MARKET PERFORM and DDM-derived TP of RM3.70.

FY17 container throughput update. WPRTS announced an update on its full-year FY17 container throughput, reporting in at 9m TEUs. This represents a 10% decline from 10m TEUs in FY16, in-line with our expectations of a poorer throughput outlook for FY17. This also implies 4Q17 container throughput of 2.2m (-14% YoY, +3% QoQ).

Transhipment decline cushioned by gateway growth. The decline in container throughput was mainly due to drop in transhipment volumes, which we estimate to have declined around 24% in FY17, arising from the (i) reshuffling of global shipping alliances, as the old Ocean Three alliance transitioned into the new Ocean Alliance during the year, coupled with (ii) restructuring of key clients within the global shipping industry, e.g. UASC’s merger with Hapag-Lloyd, and CMA CGM’s business collaborations with PSA. However, the transhipment decline was cushioned by strong growth from its gateway side, which we estimated to have recorded growth of 15% in FY17, backed by healthy domestic economic growth figures. From our understanding, gateway containers typically fetch higher margins than transhipment, and thus, would result in a milder impact towards its bottom-line impact.

Full compliance of MFRS 15. Meanwhile, the company had also announced its full compliance of the MFRS 15 accounting requirement effective FY18, superseding the previous MFRS 118 and MFRS 111 reporting standards. While we do expect a drop in the top-line as a result of changes in revenue recognition under the new standard (i.e. marketing discounts are now netted-off at revenue line, rather than being recognised in costs of sales), we believe the impact should be neutral towards its bottom-line. This is because any resulting drop in revenue should also be fully reflected in a drop in its cost of sales.

No changes to FY17-18E earnings forecasts. With the FY17 recorded container throughput deemed within expectations, we made no changes to our FY17-18E earnings forecasts, while also pending the release of its 4Q17 quarterly results expected next month. With that said, we believe FY17 will serve as a new base moving forward, with expected mild growth in FY18 and beyond, premised on (i) continued growth in gateway on the back of our expanding economy, and (ii) slight recovery in transhipment as current business environment normalises.

Maintain MARKET PERFORM. Our DDM-derived TP of RM3.70 is kept unchanged, based on the assumptions of: (i) 6% WACC, (i) terminal growth of 1%, and (iii) dividend pay-out ratio at 75%. Risks to our call include (i) lower-than-expected growth in gateway container throughput, and (ii) slower-than-expected recovery in transhipment container throughput.

Source: Kenanga Research - 4 Jan 2018