1Q19 CNP of RM139.9m and the absence of dividend came in within expectations. Moving forward, management is maintaining its guidance of 3-8% throughput growth for FY19 with minimal impact expected from the trade war. Meanwhile, terminal expansions for CT10-19 are seen as longer-term prospects. Hence, we made no changes to our earnings forecasts. Reiterate MARKET PERFORM with unchanged DDM-derived TP of RM3.75.

No surprises. WPRTS recorded 1Q18 CNP of RM139.9m, coming in within expectations at 24%/23% of our/street’s forecasts, respectively. No dividend was declared in this quarter, as expected.

Results highlight. YoY,1Q19 CNP rose 13% to RM139.9m, mainly attributed to higher revenue guided by volume recovery in both transhipment throughput (+15%) and gateway throughput (+7%), thanks to the low base effect from 1Q18 and continued growth at the Intra-Asia segment (+16%). This was further complimented by better GP margin of c.62% (+3.1ppt), likely due to the 1-month container tariff revision which took effect from March 2019. QoQ, CNP slipped 9.2% from RM154.1m largely dragged by: (i) thinner EBIT margin of 49.5% (-3.4ppt) due to widening administrative cost which increased by nearly 3x to RM6.2m from RM2.2m, and (ii) a slight jump in finance costs to RM22.8 from RM21.6m which we believe is due to the adoption of MFRS 16. This new accounting approach basically requires lessee to apply a “right-ofuse asset” method to recognise leased assets and liabilities that were previously treated as off-balance sheet items. Nonetheless, we believe the eventual impact to the bottom-line is minimal.

Unchanged throughput outlook. Despite seeing stronger YoY container throughput growth of 12% this quarter, management has opted to remain conservative by maintaining their container throughput guidance of 3-8% for FY19, which they deem to be achievable in spite of the on-going US-China trade war. Following that, we believe the impact from trade war should be fairly minimal to WPRTS as it is more likely to affect the Asia-America trade route which historically took up only c. 5-9% of the total container throughput volume. Meanwhile, we gathered that the terminal expansion from CT10-19 is still pending approvals from relevant authorities with no specific timeline being laid out yet. Nonetheless, we see the expansion for CT10-19 to be a longerterm prospect (expecting gradual development, with full completion by 2040), and as such, we do not believe there will be any earnings accretive development over the next 2 years.

Maintain MARKET PERFORM with an unchanged DDM-derived TP of RM3.75, based on: (i) 6.2% discounting rate, (ii) 1% terminal growth, and (iii) unchanged dividend pay-out policy of 75%. Our TP implies a Fwd. FY19E PER of 22x, in line with the historical average, which we deem justifiable given its modest throughput growth outlook. No changes were made to our FY19-20E earnings forecasts, which are based on throughput growth assumptions of 5-5%.

Risks to our call include: (i) significant deterioration/improvement in container throughput, (ii) escalation/decline in operating costs, and (iii) changes to dividend policy.

Source: Kenanga Research - 29 Apr 2019