Post-meeting, we reiterate our NEUTRAL stance on WPRTS’ near to medium-term prospect, with an unchanged throughput growth assumption of 5% coupled with a lack of near-term earnings catalyst. Moreover, we view Westports 2 as a longer-term prospect with land reclamation for Phase 1 to commence from FY20 onwards. Maintain MARKET PERFORM with unchanged DDM-driven TP of RM3.75.

Westports 2 as a longer-term prospect. WPRTS is expanding its Westports 2, which is anticipated to be executed in three phases, with first phase covering CT10, CT11 and CT12. Though no specific details have been laid out yet, we opine the land reclamation for Phase 1 will likely commence from FY20 onwards with capex of RM3~4b based on preliminary estimations. We believe the company would likely have to fund a portion of the capex through equity, i.e., dividend reinvestment plan. Nevertheless, we are fairly neutral towards the possibility of a dividend reinvestment plan as (i) shareholders would still be given an option to receive dividends instead of reinvesting them, and (ii) EPS dilution may not be substantial at less than 10% dilution based on our preliminary calculations. This leads us to believe that WPRTS is well on track with its expansion plans in order to cater for future trade volumes growth. Nonetheless, we reiterate our view with Westports 2 expansion to be a longer-term prospect with full completion by 2040. As such, we rule out any earnings accretive development over the next two years.

New liquid bulk jetty. WPRTS is constructing a new liquid bulk jetty on 33 acres of land. A Liquid Petroleum Gas (LPG) client has already secured 18 acres of the land on which it would be developing an independent LPG storage facility, while the remaining 15 acres will be opened for other interested clients. The total capex for this jetty is expected to be c.RM70m with construction to begin earliest in 2H19, and operations in FY21. Though the impact is expected to be insignificant, this will contribute to WRPTS’ conventional segment, which historically took up 7-8% of the group’s total revenue and rental revenue, which historically took up 2-3% of the group’s total revenue.

Improving throughput outlook? To recap, WRPTS posted an exceptionally strong throughput growth of 12% YoY for 1Q19, which is expected to be continued further, buoyed by the increase in Ocean Alliance calls. Nonetheless, management maintained its container throughput guidance of 3-8% for FY19 as (i) throughput growth levels are expected to taper down from 2H19 onwards due to the higher-base effect from 2H18, and (ii) minimal impact expected from trade war as it is more likely to impact the Asia-America trade route (historically taking up only c.5-9% of the total throughput volume). As such, we made no changes to our FY19-20E throughput growth assumptions of 5-5%.

Maintain MARKET PERFORM given its unexciting earnings growth prospects. Nevertheless, the call is supported by a decent dividend yield of c.3% 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 as justifiable given its modest throughput growth outlook.

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

Source: Kenanga Research - 9 May 2019