9MFY20 Core Net Profit (CNP) of RM514.7m (+11% YoY) came in at 82%/85% of our/consensus of full-year forecast. We deemed the results to be within our expectation as we expect a slower 4QFY20 with empties containers which comprised 25% of 3QFY20 transhipment volume already mostly send back to China up to October 2020. The recycletime could be pushed back to next year. No changes to FY20E CNP but we increased FY21E CNP by 7% on anticipated full re-opening of economy. Maintain MP with a higher TP of RM4.20 (from RM3.65).

9MFY20 deemed in line. 9MFY20 Core Net Profit (CNP) of RM514.7m (+11% YoY) came in at 82%/85% of our/consensus of full-year forecast. We deemed the results to be within our expectation as we expect a slower 4QFY20 with empties containers which comprises 25% of 3QFY20 transhipment volume already mostly send back to China up to October 2020. No dividend for the quarter as expected, with YTD DPS at 5.05 sen (9MFY19: 6.74sen).

QoQ, 3QFY20 CNP soared higher (+44%) in correspondence with higher revenue (+22%) on higher volume from transhipment (+31%) and gateway (+26%). Furthermore, its EBIT margin expanded significantly by 10.5ppt to 54.6% compared to 44.1% in 2QFY20 with no additional requirement for general bad debt provision or Oracle expenses for administrative expenses since 2QFY20. 3QFY20 revenue rebounded from 2QFY20 Covid-19 induced slowdown with Transhipment recovery reflected some repositioning of empties while gateway growth is more broad-based with notable growth in especially paper, rubber-related and fertilizer TEUs. Empties constitute 25% of total transhipment volume. Overall, 3QFY20 intra-Asia and Asia-Europe volumes soared 28% and 31%, respectively, which accounted for 78% of total throughput.

YoY, 9MFY20 CNP rose 11% in correspondence with higher revenue (+8%) on higher gateway volume (+5%), and the tariff hike (full quarter tariff hike impact from a 13% gateway tariff revision which took effect from March 2019) but offset by lower transhipment (-8%) on Covid-19 induced slowdown. Note that, lower EBIT by 2.1ppt to 48.5% from 50.6% in 9MFY19 was due to general bad debt provision and apportionment of Oracle payment in the 1H of the year but no additional requirement since.

Longer term prospects with Westports 2. In terms of dividends, payout ratio guidance is lowered from 75% to 60% in FY20 to conserve cash for 2021 when the new container terminal expansion project is expected to commence with the purchase of Marina Land and land reclamation. With total capex for Westports 2 (CT10-17) amounting to ~RM10b, the new CTs are expected to nearly double in 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 view this to be a very longterm play for the group with anticipated full completion by 2040, thus ruling out any earnings accretive development over the next few years. FY21E CNP increased by 7% on anticipation of stronger throughput volume on full re-opening of the economy next year.

Maintain MP with a higher DDM-derived TP of RM4.20 (from RM3.65) based on: (i) 6.2% discounting rate, (ii) 1.5% terminal growth, and (iii) dividend pay-out policy of 75%. The saving grace is a 3.6% dividend yield.

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

Source: Kenanga Research - 27 Nov 2020