WPRTS's FY24 results beat expectations as it claimed higher investment tax allowance (ITA) in 4QFY24 which drove its FY24 core net profit to grew at a sharper 15% YoY, as well as riding on record container volume, better yield gateway cargoes, and lower operating costs. We raise our FY25F net profit by 4%, introduced FY26F net profit (+7% YoY), lift our DCF-derived TP by 6% to RM4.40 (from RM4.15), and maintain our MARKET PERFORM call.

Its FY24 core net profit exceeded expectations by 6% and 8% of our forecast and the consensus estimate, respectively. The variance against our forecast arose largely from lower-than-expected effective tax rate. Overall, the results would have been within our expectation if not for the tax impact.

YoY, its FY24 revenue rose 9% underpinned by: (i) marginal increase in container volume (+1%), (ii) an improved average revenue per TEU (+8%) backed by better cargo mix with expanding high-margin gateway cargoes, and (iii) a higher storage income ratio of 25% in 4QFY24 (vs. 24.6% in 3QFY24) thanks to boxes re-routed from the Port of Singapore.

Its gateway container volume (+8%) remained strong on the back of brisk exports by local manufacturers (partly fuelled by the weak MYR).

This was partially offset by a 4% decline in the transhipment volume due to: (i) lingering conflicts in the Middle East that weighed down on the Asia-Europe trade, (ii) the disruption in the form of intermittent port congestions (due to vessels bunching, i.e. vessels arriving back-to-back or within a short time interval between each vessel), and (iii) the cessation of local operations of a shipping liner on Malaysia's docking ban on Israel-flagged ships.

On the other hand, its conventional cargo volume improved to 12.19m metric tonnes (+5%) on higher volume of break bulk throughput (project cargoes and mixed steel) and dry bulk throughput (soybean, maize, clinker/slag, and fertiliser) volume.

Its core net profit grew by a sharper 15% due to a lower effective tax rate at 21.1% vs. 22.5% in FY23 as it claimed higher ITA in 4QFY24, better mix skewed towards higher-margin gateway cargoes, and further boosted by lower operating costs from reduction in depreciation cost (- 9%) in line with the extended useful life of existing concession assets from 2054 to 2070 under the new concession agreement and lower fuel costs (-5%) due to a lower MOPS price as well as stronger MYR starting in 3QFY24.

QoQ, its 4QFY24 revenue rose 18% on stronger container growth (+7%) as transhipment volume soared 11% on front-loading activities in anticipation of US tariff hike, and Chinese New Year driven cargoes as well as higher value-added services (VAS) revenue which increased by +67%, driven by higher storage income ratio of 25% in 4QFY24 (vs. 24.6% in 3QFY24) due to metal commodities cargoes stricter regulations approval. Its core net profit grew by a steeper 13% due to reasons as mentioned above and lower effective tax rate of 15.5% vs 23.2% in 3QFY24 as it claimed higher Investment Tax Allowance (ITA) for the 99 units of terminal trucks purchased at the end of 2024.

The key takeaways from the results briefing are as follows:

1. It guided for a low single-digit container volume growth rate in FY25 (vs. our assumption of 4%) and slightly more positive tone for FY26, guiding for a single-digit container volume growth rate (vs. our assumption of 4%). It will embark a new shipping service to the US for the new Premier Alliance (80% transhipments: 20% gateway cargoes) in 1QFY25 with expectation of easing in the Middle East conflicts, and Asean ports to benefit from China +1 business strategy. It also expects container volume frontloading activities on the possible tariff hike under the Trump administration.
2. The diversion of shipping liners from Suez Canal to the Cape of Good Hope has resulted in intermittent port congestion due to vessels bunching (vessels arriving back-to-back or within a short time interval between each vessel). The container yard utilisation eased to 80% in December 2024 compared to 100% in Jun 2024, which it expects to ease further in 2025 as the Middle East conflicts eased.
3. The approval for container tariff revision is still pending (expecting to be concluded by mid-2025, with implementation by 2026, though could potentially be delayed). On the other hand, its new RM5b Sukuk Wakalah programme has now been put in place with initial drawdown of RM355m in May 2024, mainly to refinance Marina land acquisition (RM423m). At WP2 expansion, dredging and land reclamation will commence soon, so the required earthworks at CT10 can be completed by 4QCY26. The construction of CT10's wharf is scheduled to start in 1QCY27 with the 1st 300-metre wharf at CT10 to commence operations by 2QCY28.
4. Westports will propose a 5-year Dividend Reinvestment Plan (DRP) to facilitate part-financing WP2 expansion.

Shareholders who subscribe to the DRP will reinvest a portion of the distributable dividend for new issuance of shares at the prevailing market price. Shareholders who opt not to participate will receive the entire dividend declared in cash.

Forecasts. We increased our FY25 net profit by 4% to reflect the lower effective tax rate. We also introduced FY26 net profit at RM968.6m (+7%)

Valuations. Correspondingly, we upgrade our DCF-derived TP by 6% to RM4.40 (from RM4.15) 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).

Investment case. We 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. Maintain MARKET PERFORM call.

Risks to our call include: (i) a significant pickup in the global economy, boosting the global containerised trade traffic, (ii) escalation in the Middle East conflicts, (iii) operating costs turn more benign, particularly fuel, and (iii) its expansion plans and tariff revision materialise sooner than expected.

Source: Kenanga Research - 24 Jan 2025