Investment Highlights

• Year-over-year decline in container throughput in FY17

• Gateway segment continues to gain volume traction

• News services from OCEAN alliance

• Revising downwards earnings forecast for FY17

• Maintain NEUTRAL with reduced TP of RM3.83 per share Reported container throughput to decline by about -9.5%yoy.

Westports reported that the container throughput for FY17 was at approximately 9 million TEU, which translates into a -9.5%yoy decline. The decline is within the range guided by the management; between -7% and -12%yoy.

Gateway segment continues to gain volume traction. It comes as no surprise to us that the transhipment segment mainly contributed to the overall volume decline. Total transhipment volume dropped by - 16%yoy, partially cushioned by the gateway segment that had a +10%yoy volume growth. With that, the ratio of transhipment to gateway volume currently stands at 31:69 compared to 26:74 in FY16. This provides some relief as yields for gateway cargo are higher than that of transhipment at an estimated premium of 60%.

4QFY17 volume may experience growth. With the 9m TEU achieved in FY17, the container volume in 4QFY17 is estimated to be 2.2m TEU, posting its first gain of +14%qoq after three consecutive quarters of decline. We ascribe such quarterly improvement to the recalibration currently taking place in the new shipping alliances, establishing a new base in 2HFY17.

New offerings from OCEAN alliance. In December 2017, the OCEAN alliance announced its ‘Day Two Product’ services that will commence in April 2018. This new range of services covers 41 east west loops with an estimated carrying capacity of 3.6m TEUs, facilitated by larger vessels. For Westports, it remains with 12 port calls per week by the OCEAN alliance, reaffirming its role as an important hub to the shipping pact.

Earnings forecast. We are adjusting downwards our earnings forecasts slightly for FY17 to RM570.0m (previously RM575.4m) as we incorporate the management’s guidance on the -9.5% decline in container throughput volume in FY17. We were previously expecting an even lower annual decline in volume throughput.

Source: MIDF Research - 4 Jan 2018