• 12MFY16 core net profit in line

• Receivables from Hanjin Shipping fully written off

• Gateway cargo recovering in tandem with external trade

• Buying opportunity has emerged

• Maintain BUY with unchanged TP of RM5.00

12MFY16 results in line. WPRTS reported 12MFY16 core PAT of RM615m (+20%yoy) which met our expectations, representing 102% of our full year forecasts. Core PAT growth was contributed by container throughput growth of +9.8% and lower tax rate of 19% (FY15: 22%). For the fourth quarter of 2016, revenue and core PAT came in at RM469m and RM154m which were higher by +13%yoy and +11%yoy respectively.

Receivables from Hanjin Shipping fully written off. During the quarter, WPRTS wrote off a further RM7m in receivables due from Hanjin Shipping. As such, they have fully written off all receivables from Hanjin which totals RM9.3m. On the bright side, WRPTS assesses that a good portion (if not all) can be recovered in FY17 from disposing the fallen liner’s containers.

Gateway cargo staging a nascent recovery. Throughput for the segment rose +8%yoy in the fourth quarter, helping boost full year growth to +3%yoy after being flat in the first 9 months. While the fourth quarter enjoyed a seasonal uptick for consumption good imports ahead of the CNY holidays, the manufacturing sector had played a bigger role in boosting imports. Lending support to our view is the composition of imports where consumption goods represent 10% of total imports behind intermediate (58%) and capital (13%) goods.

Forecasting +2% growth in gateway cargo volume. Our economics team believes that Malaysia’s external trade growth could stage a recovery in 2017, forecasting total trade to grow by +2%. This would bode well for WPRTS as tariffs for gateway cargo (RM260 per move) are more than double that of transhipment cargo (RM100 per move). Hence, we maintain a growth assumption of +2% for the gateway container segment for FY17 and FY18. A better than expected outcome could prompt us to revise our forecasts upwards.

Uncertainty pertaining to the shipping alliances creates a buying opportunity. We expect the first quarter of 2017 to be business as usual for Westports as the new alliances will only take form in April 2017. The full extent of how the shipping landscape will alter come April 2017 is still uncertain as both the Ocean Alliance and THE Alliance have yet to announce all of their services. However, what we do know is that WPRTS will likely benefit from: i) additional volume from the Ocean Alliance’s new members (Cosco, Evergreen and OOCL); ii) organic growth in Intra-Asia transhipment activity; iii) the total transhipment throughput volume handled in the Straits of Malacca region exceeds the capacity of any single port along the Strait. Meanwhile, WPRTS has positioned itself as a key contender offering some of the lowest transhipment handling rates, quick turnaround time and higher import/export cargo volume. Hence, we view the current weakness in share price as a buying opportunity.

Maintain BUY with TP of RM5.00 based on DCF valuation (terminal growth: 2%, WACC: 7%). We like WPRTS due to: i) clarity on future container handling tariffs with the next hike scheduled in 2018; ii) potential M&A activity for smaller, high growth ports; and iii) scheduled completion of CT8 with additional 2.5m TEU capacity in FY17 and commencement of CT9 coinciding with the formation of the Ocean Alliance.

Source: MIDF Research - 13 Feb 2017