9MFY21 Core Net Profit (CNP) of RM544.3m (+11% YoY) came at 79%/76% of our/consensus full-year estimate. We deemed the results above our expectation on higher-than-expected storage revenue. We increase both FY21E/FY22E CNP by 3.3% on adjustment for higher storage revenue to offset lower container volume growth. Overall, the container volume growth is still limited by the pandemic induced supply-chain disruption which limits the movement of goods globally. Maintain MP with a higher DDM-derived TP of RM4.30 (from RM4.20). The stock offers dividend yield of 3.5%.

9MFY21 above our expectation. 9MFY21 Core Net Profit (CNP) of RM544.3m (+11% YoY) came at 79%/76% of our/consensus full-year estimate. We deemed the results above our expectation on higher-thanexpected storage revenue. No DPS was declared (1HFY21 at 8.5 sen), which are usually paid half yearly. Note that, 9MFY21 CNP excludes the RM41m of quay cranes insurance recoveries.

YoY, 9MFY21 CNP rose 11%, attributed to: (i) higher transhipment volume (+5%), but gateway volume (-1%) was affected by the mid-year local lockdown, and (ii) higher EBIT margin by 5.6ppt to 54.1% from 48.5% in 9MFY20 especially from the absence of general provisions amounting to RM33.4m and including quay cranes insurance recoveries (RM41m). Nonetheless, operating costs remained elevated (+12%) from higher manpower costs (to handle congestion at the port), and higher fuel costs (rising oil prices). Overall, the main trade route (intra-Asia) volumes were down 2% and the Asia-Europe volumes were also down, 1% from positive growth in the 1H of the year affected by the lockdown in Bangladesh and Vietnam (Asia route) and Europe experiencing new wave of Covid-19 infections.

QoQ, 3QFY21 CNP registered flat growth in tandem with pedestrian growth in revenue as higher transhipment volume (+5%) was offset by the lower gateway volume (-12%), which was affected by the mid-year local lockdown. EBIT margin was higher by 6.0ppt to 55.7% from 49.7% mainly from the one-off RM21m quay cranes insurance recoveries as operating costs remained elevated. 3QFY21 yard utilisation rate stayed high at c.90% compared to 2019 at 75%, and 2020 at 60% during lockdowns, and 120% in Dec 2020. Container utilisation rate remained efficient at 70-80%.

Longer term prospects from Westports 2. The approved new container terminal expansion project is pending only UKAS, MOT and concession’s 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 capacity to 27m TEUs from 14m TEUs, spread over 20 years. With anticipated full completion only by 2040, we view this investment as a very long-term play for the group, 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 adjustment adhering to COVID-19 precautionary measures.

We increase both FY21E/FY22E CNP by 3.3% on adjustment for higher storage revenue to offset lower container volume growth. Note that, container volume is still the main revenue for the group and storage revenue has risen only on unfavourable yard congestion. The recent announcement on Cukai Makmur may not affect Westports if the group is able to secure approval on investment tax allowance (ITA) before the implementation of the tax to maintain the current level of effective tax rate.

Maintain MP with a higher DDM-derived TP of RM4.30 (from RM4.20) based on: (i) 6.2% discounting rate, (ii) 1.5% terminal growth, and (iii) dividend payout policy of 75%. The stock offers dividend yield of 3.5%.

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

Source: Kenanga Research - 1 Nov 2021