FY20 Core Net Profit (CNP) of RM654.5m (+11%) came in within expectations at 105%/99% of our/consensus full-year forecast. Empty containers which comprised 25% of FY20 transhipment volume have already been mostly sent back to China with the recycle-time likely being pushed back. Delay in shipping line arrival time schedule coupled with pandemic-induced supply chain disruption could potentially limit container volume this year. Maintain MP with a TP of RM4.20. The saving grace is a 3.3% dividend yield.

FY20 within expectations. FY20 Core Net Profit (CNP) of RM654.5m (+11%) came in within expectations at 105%/99% of our/consensus fullyear forecast. A 2nd interim DPS of 6.47 sen was declared, ending FY20 DPS at 11.52 sen (FY19: 13.00 sen), as expected at 60% dividend pay-out ratio.

QoQ, 4QFY20 CNP plunged 20% mainly due to lower operational revenue by 6% with lower volume from both transhipment (-6%) and gateway (-6%) slammed by unexpected container congestion at the port from disruption in the global supply chain limiting its container takeup rate. Note that, total revenue increased 2% only from the accounting recognition of construction revenue of RM69m. Furthermore, its EBIT margin contracted significantly by 11.3ppt to 43.3% compared to 54.6% in 3QFY20 mainly from the higher manpower cost with higher bonus provision, more headcount and annual increments. Overall, 4QFY20 intra-Asia and Asia-Europe volumes plunged 9% and 8%, respectively, which accounted for 76% of total throughput.

YoY, FY20 CNP rose 11% in correspondence with higher revenue (+11%) on higher gateway volume (+4%), and the tariff hike (full-year tariff hike impact from a 13% gateway tariff revision which took effect from March 2019) but offset by lower transhipment (-7%) on Covid-19 induced slowdown. Note that EBIT was lower by 0.5ppt to 47.1% from 47.6% in FY19 due to general bad debt provision and apportionment of Oracle payment in the 1H of the year and partial impact from higher manpower costs in 4QFY20.

Longer term prospects with Westports 2. In terms of dividends, payout ratio guidance is revised back to 75% in FY21 from 60% in FY20 with the approved new container terminal expansion project pending only land conversion preparation and concession agreement negotiation with the Government of Malaysia. 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 spread over 20 years. 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. The global supply chain is adjusting to a combination of factors, such as higher consumer demand for containerised goods in Western economies, lockdowns and a global supply chain adhering to COVID-19 precautionary measures.

Maintain MP with DDM-derived TP of RM4.20 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 3.3% dividend yield.

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

Source: Kenanga Research - 3 Feb 2021