WPRTS’s 9MFY23 results beat expectations on better-thanexpected container volume growth. It raised its guidance for FY23F container volume growth range to 5% to 10% (vs. 0% to 5%, previously) but maintained that of FY24F at single-digit. We raise our FY23-24F net profit forecasts by 6% and 7%, respectively, lift our DCF-derived TP by 4% to RM3.80 (from RM3.65) and upgrade our call to OUTPERFORM from MARKET PERFORM.

Its 9MFY23 results beat expectations, coming in at 81% and 80% of our full-year forecast and the full-year consensus estimate respectively. The key variance against our forecast came from a better-than-expected container volume growth rate.

YoY, its 9MFY23 revenue rose 3%. Stronger container volume (+7%), was partially offset by a lower average revenue per TEU (-4%) on lower storage income as port congestion eased.

Its transhipment volume rose 4% driven by the normalisation of shipping rates on the return of larger container ships on the heels of full reopening of borders (vs. the deployment of smaller container ships by shipping lines during the pandemic). Recall, WPRTS caters to larger container ships while rival Northport largely handles smaller ones. Meanwhile, its gateway container volume (+12%) remained strong on the back of brisk exports by local manufacturers (partly fuelled by the weak MYR).

On the other hand, its conventional cargo volume eased to 8.15m metric tonnes (-8%) due to lower break bulk throughput (ingots, coils, mixed steel and rubber) and the transition toward containerised cargoes, which more than offset the higher throughput of liquid bulk cargoes (with increased LPG, palm oil and gasoline/diesel products handled).

Its core net profit surged by 23% due to lower diesel fuel cost (-23%; which is unsubsidised), lower finance costs (-21%; yearly sukuk repayment of RM125m in June 2023, with balance sukuk borrowings at RM850m), and the normalisation of its effective tax rate to 22.8% (9MFY22: 32.9%) in the absence of the prosperity tax.

QoQ, its 3QFY23 revenue was flattish. Slight improvement in container volume (+2%) was offset by lower average revenue per TEU (-2%). Its core net profit was similarly dragged by higher diesel fuel cost (+19%) and finance costs (+6%).

The key takeaways from the results briefing are as follows:

1. It raised its guidance for FY23F container volume growth range to 5% to 10% (vs. 0% to 5% previously) on robust intra-Asia trade driven by the increase in direct investment from China such as container volume related to recycling paper mills, and solar panel manufacturer, but maintained that of FY24F at single-digit. In the event of a global recession, it still holds the view that it will be brief and shallow.

2. For the quarter, empty container boxes level normalised (at 27% of total containers vs. 29% three months ago) as the empty containers had mostly been shipped out to China. The intra-Asia container volume rose 5% QoQ which indicated that some of the boxes had been put back into the circulation.

3. The port congestion has come to an end, as reflected in the normalisation of its container yard utilisation to the optimal level of about 80%. On one hand, WPRTS sees lower storage income. On the other hand, it is regaining customers lost to a neighbouring port at the height of port congestion, translating to a higher container volume. Also, with its container yard operating at an optimal level, there are efficiency gains.

4. The Westports 2 expansion project is still pending concession agreement which is expected to be finalised by December 2023. It indicated that the capital raising for the project will start one year after the project commence. Recall, the RM10b Westports 2 (CT10-17) will almost double its capacity to 27m TEUs from 14m TEUs currently over 20 years.

Forecasts. We raise our FY23F and 24F net profit by 6% and 7% respectively, as we lift our FY23F and 24F container volume growth rates to 6% and 4% respectively (from 1% and 3% previously).

Consequentially, we upgrade our DCF-derived TP by 4% to RM3.80 from RM3.65 which is based on a discount rate equivalent to its WACC of 6.1% and a terminal growth rate of 2%. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 4).

We continue to like WPRTS for: (i) its resilient earnings underpinned by long-term contracts with key clients such as Ocean Alliance, (ii) its long-term growth prospect driven by the Westports 2 expansion project, and (iii) its price competitiveness, i.e. lower transhipment tariffs vs. peers such as Port of Tanjung Pelepas and Port of Singapore. Value has emerged after the recent weakness in its share price. Upgrade to OUTPERFORM from MARKET PERFORM.

Risks to our call include: (i) a significant slowdown in the global economy, dampening the global containerised trade traffic, (ii) rising operating costs, particularly fuel, and (iii) its expansion plans fail to materialise.

Source: Kenanga Research - 10 Nov 2023