FY21 Core Net Profit (CNP) of RM735.2m (+14% YoY) came above our expectation on lower-than-expected effective tax rate and higher-than-expected unconventional storage income in the 4Q. Overall, the container volume growth is still limited by the pandemic-induced supply-chain disruption. Furthermore, Westports is expected to take the full brunt of the one-off prosperity tax (Cukai Makmur) at an effective tax rate of 33% in FY22. Thus, we made no changes to our FY22 estimates. Maintain MP with unchanged DDM-derived TP of RM4.00. The stock offers dividend yield of 3.9%.

FY21 above our expectation. FY21 CNP of RM735.2m (+14% YoY) came in at 110%/103% of our/consensus estimates. The results came above our expectation on lower-than-expected effective tax rate and higher-than-expected unconventional storage income in the 4Q. Final DPS of 9.28 sen (4QFY20: 6.47sen), brought FY21 dividends to 17.78 sen (FY20:11.52 sen), above expectation. Note that, FY21 CNP excludes RM73m of quay cranes insurance recoveries (5% left for FY22).

YoY, FY21 CNP surged 14% mainly due to: (i) higher EBIT margin by 7.4ppt to 54.5% from 47.1% in FY20 especially from the absence of general provisions amounting to RM33.4m, and including quay cranes insurance recoveries (RM73m), (ii) higher unconventional other income (+233%) from higher utilisation of yards space, and (iii) lower effective tax rate of 22.3% (FY20: 24.3%) from higher deferred tax assets. Overall, revenue showed minimal growth (+2%), with flat transhipment volume (+0%), and weak gateway volume (-3%) affected by the mid-year local lockdown. On the other hand, operating costs remained elevated (+11%) 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 3% and the Asia-Europe volumes were also down 6% affected by the lockdown in Bangladesh and Vietnam (Asia route) and Europe experiencing new wave of Covid-19 infections.

QoQ, 4QFY21 CNP rose 7% mainly due to: (i) lower effective tax rate of 15.9% (3QFY21: 24.9%) from higher deferred tax assets, and (ii) higher unconventional other income (+49%) from higher utilisation of yards space. Overall, revenue showed flat growth with significant slowdown in transhipment volume (-12%) affected by high yard utilization, supply chain challenges and further hampered by two weeks of lower productivity, affected by surrounding floods in December 2021. However, this was partly cushioned by better gateway volume (+3%) on the usual year-end higher retail activities.

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. Renewal in investment tax allowance (ITA) is progressing gradually given the slow approval of Westports 2. Westports is also expected to take the full brunt of one-off prosperity tax (Cukai Makmur) at effective tax rate of 33% in FY22.

Maintain MP with unchanged DDM-derived TP of RM4.00 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 3.9%. Risks to our call include: (i) significant deterioration/improvement in container through-put, and (ii) changes in dividend policy.

Source: Kenanga Research - 28 Jan 2022