INVESTMENT HIGHLIGHTS

• 1HFY18 results below estimates

• Gateway volumes soared to record high

• 2HFY18 is set to perform better year-over-year

• Revising earnings forecast downwards

• Maintain BUY with reduced TP of RM3.69 per share

1HFY18 earnings below estimates. Westports reported a 1HFY18 normalised PAT of RM245.6m (-15.2%yoy) which missed our estimates by a variance of less than 10%. The decline in earnings was mainly due to higher finance cost and depreciation charges.

Gateway volumes soared to a record high. The total container throughput volume in 1HFY18 declined by -3.6%yoy. Transhipment volume registered a -12.9%yoy decline in 1HFY18 but for 2QFY18, the segment recorded the lowest decline in five quarters at -5.9%yoy. As such, residuals effects from the consolidation of shipping alliances have lessened. Nonetheless, the overall decline in container volume in 1HFY18 was cushioned by the +20.0%yoy increase in gateway volume, reflecting favourable domestic economic growth in spite of the global trade tensions. In fact, the gateway segment posted a record volume of 0.88m TEUs in 2QFY18. With that, the ratio of gateway to transhipment volume as of 30th June 2018 stood at 36:64 compared to 28:72 in 2QFY17. This provides some relief as yields for gateway cargo are higher than that of transhipment.

Moving forward. To recall, the recalibration of shipping alliances took place in April 2017 with impacts lasting for around 15 months. Therefore, the natural growth in container volumes should be felt from 2HFY18 onwards given the low base effect. Nonetheless, we are exercising conservatism by slightly adjusting our total container throughput growth forecast downwards from +5.2%yoy to +4.6%yoy. Grounds to adjust our forecast include the possibility of gateway volumes to taper off after reaching a record high in 2Q18 amidst the shift in the nation’s tax regime which may affect consumption and eventually import volumes. We also take note of the risks from the global trade war but in our opinion, the impact will be minimal as the economic growth in Asia and ASEAN remains resilient at 6.5%yoy and 5.3%yoy for 2018, respectively according to the International Monetary Funds’ latest projection.

Source: MIDF Research - 26 Jul 2018