INVESTMENT HIGHLIGHTS

• 1QFY18 results broadly inline
• Gateway segment continues to gain volume traction
• 2HFY18 is set to perform better year-over-year
• Maintaining earnings forecast
• Maintain BUY with revised TP of RM3.85 per share

1QFY18 earnings broadly in line. Westports recorded a first quarter normalised PAT of RM123.9m (-12.1%yoy) which is within ours and consensus’ expectations, accounting for 21.2% and 22.2% of full years forecasts respectively. The decline in earnings was mainly due to higher finance cost and depreciation charges.

1QFY18 volume cushioned by gateway. The total container throughput volume in 1QFY18 declined by -7.4%yoy. Transhipment volume registered an -18.7%yoy drop due to the absence of the Ocean 3 Alliance volume which were present in 1QFY17 prior to the reshuffling of alliances in April last year. Nonetheless, the overall decline in container volume was cushioned by the +26.2%yoy increase in gateway volume underpinned by resilient trade growth. In fact, the gateway segment maintained its highest ever TEU volume at 0.77m for the second consecutive quarter despite shorter days in a month and the Lunar New Year Holidays (refer to Figure 2). With that, the ratio of gateway to transhipment volume as of 9th April 2018 stood at 34:66 compared to 25:75 in 1QFY17. This provides some relief as yields for gateway cargo are higher than that of transhipment.

Looking ahead. Container volume in 2QFY18 is expected to be flat on a yearly basis but slightly higher than the preceding quarter. Recall that the formation of new shipping alliances took place in April 2017 and the impact from the recalibration would usually last for 15 months. Therefore, the positive impact on volume should be felt after 1HFY18, making 2HFY18 the turning point for container volume growth. Management reiterated container volume growth to be within a range of 0-5%. Meanwhile we are slightly more optimistic, maintaining our forecast of a +5.2%yoy increase in throughput volume in FY18 (refer to Figure 1). Our more upbeat view hinges on continued strength in Malaysian external trade that is estimated to grow by +9.3%yoy (internal forecasts) which would bode well for the gateway segment.

Source: MIDF Research - 26 Apr 2018