FY19 Core Net Profit (CNP) of RM643.9m (+19%) came in within expectations at 103%/100% of our/consensus full-year forecast. The solid results were due to higher throughput and one-off gateway tariff hike in Mar 2019. With land reclamation works for Westports 2 expected to begin earliest by 1QFY20, we continue to view it as a longer-term prospect. Downgrade our FY20E net profit by 3% to take into account the slowerthan-expected transhipment due to concerns over the Wuhan virus. TP is cut from RM4.15 to RM4.05. Maintain MP.

FY19 came in within expectations. FY19 Core Net Profit (CNP) of RM643.9m (+19%) came in within expectations at 103%/100% of our/consensus full-year forecast. A 2nd interim dividend of 6.26 sen was declared this quarter as expected, bringing FY19 DPS to 13.0 sen which came in within our expectation.

QoQ, 4QFY19 revenue fell 1.7% due lower volume from transhipment (- 0.5%). 4QFY19 normalised PBT margin was 3.3ppt lower to 46.6% compared to 49.9% in 3QFY19 due to higher maintenance costs, more kWh of electricity used, greater manpower incentives; all due to higher container TEUs. Excluding one-off impairment (RM53m) arising from the vessel berthing incident in Nov 2019, 4QFY19 CNP came in at RM178m (+12%) due to a lower effective tax rate of 23.6% compared to 24.4% in 3QFY19. Overall, intra-Asia volumes rose 12% QoQ which accounts for 63% of total throughput which more than offset Asia-America volumes decline of 23%, albeit accounting for 6% of total throughput.

YoY, FY19 revenue was higher due to higher throughput (+14%) and one-off tariff hike in Mar 2019. FY19 CNP of RM643.9m (+19%) was underpinned by: (i) 10% improvement in revenue driven by higher throughput (+14%) led by transhipment (+16%) and gateway (+10%) which more than offset lower conventional (-8%), and (ii) flattish opex and full 2QY19 impact from a 13% gateway tariff revision which took effect from March 2019.

Longer term prospects with Westports 2. Separately, Westports is buying a piece of land measuring 361.8 acres known as Marina Land for a cash consideration of RM393.9m (RM25 psf) which is only expected to put a small dent to group’’s net gearing of 0.27x as at 31 Dec 2019. The land is for the development of container terminal (CT) facilities which is an integral part of the group’s proposed expansion plans involving the development of 8 additional berths comprising CT 10 to CT 17. With total capex for Westports 2 (CT10-17) amounting to ~RM10b, the new CTs are expected to nearly double capacity to 27m TEUS from 14m TEUs. While the heavy capex will be spread over 20 years, we believe the company would likely have to fund a portion of the capex through equity, i.e., dividend reinvestment plan. We are fairly neutral towards the possibility of a dividend reinvestment plan as (i) shareholders would 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. However, we view this to be a very long-term play for the group with anticipated full completion by 2040, thus ruling out any earnings accretive development over the next few years.

FY20E net profit downgraded by 3% and we introduce our FY21E forecast. We downgrade our FY20E net profit by 3% to take into account the slower-than-expected transhipment due to the uncertainty and concerns over the Wuhan virus.

Maintain MP. Our DDM-derived TP is reduced from RM4.15 to RM4.05 based on: (i) 6.2% discounting rate, (ii) 1% terminal growth, and (iii) dividend pay-out policy of 75%. Risks to our call include: (i) significant deterioration/improvement in container through-put, and (iii) changes in dividend policy.

Source: Kenanga Research - 10 Feb 2020