1QFY22 Core Net Profit (CNP) of RM151.9m (-19% YoY and 20% QoQ) came in at 22%/20% of our/consensus full-year estimates. We deemed the results to be within our expectation as we expect normalisation in container volume in the upcoming quarters with the gradual easing in supply chain disruption especially in 2H of the year. Maintain MP with DDMderived TP of RM4.00. The stock offers dividend yield of 3.9%. 

1QFY22 within our expectation. 1QFY22 Core Net Profit (CNP) of RM151.9m (-19% YoY and -20% QoQ) came in at 22%/20% of our/consensus full-year estimates. We deemed the results to be within our expectation as we expect normalisation in container volume in the upcoming quarters with the gradual easing in supply chain disruption especially in 2H of the year. No dividend was declared for the quarter as the group announced its dividend half yearly.

Results highlights, 1QFY22 CNP plunged 19% YoY and 20% QoQ mainly due to: (i) higher effective tax rate of 39.0% (1QFY21: 23.9%, 4QFY21: 15.9%) from prosperity tax imposition (average 30% tax), lower deferred tax assets and recognition of certain provision, (ii) lower EBIT margin by 5.6ppt YoY and 4.5ppt QoQ to 51.1% from 56.7% and 55.7%, respectively, in 1QFY21 and 4QFY21 especially from the absence of quay cranes insurance recoveries (RM20m), and higher operating costs (higher fuel cost due to rise in oil price and higher manpower cost due to its initiative in revising minimum wages to RM1,500 since January 2022), and (iii) lower unconventional other income from improved utilisation of yards space, in-line with recovery in supply chain. Overall, revenue showed minimal growth (+2%), despite lower transhipment volume (-16% YoY, -10% QoQ), and marginal gateway volume (0% YoY, 9% QoQ) mainly due to higher Value Added Service (VAS) and incremental increase in revenue per TEU. Conventional revenue increased with higher break project cargo and RORO units; the latter helped by Sales Tax Exemption. Overall, the main trade route (intra-Asia) volumes were down 5% and the Asia- Europe volumes were also down, by 17%, affected by the lockdown in Bangladesh and Vietnam (Asia route) and Europe experiencing new wave of Covid-19 infections.

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 its 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 has taken the full brunt of one-off prosperity tax (Cukai Makmur) at effective tax rate of 33% for FY22 (or average of 30% based on 1QFY22 PBT).

Maintain MP with 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 - 27 Apr 2022