INVESTMENT HIGHLIGHTS

• 1QFY19 performance in line with expectations

• Total container volume jumped +12.4%yoy due to the low base effect

• 2QFY19 is set to perform better with extra services added under the Ocean Alliance and full effect of tariff hike

• FY19 earnings forecast unchanged while FY20 earnings slightly adjusted downwards for the new liquid bulk jetty capex

• Maintain BUY with revised TP of RM4.09 per share

1QFY19 earnings in line with expectations. Westports Holdings Berhad (Westports) recorded a first quarter normalised PAT of RM140.0m (+13.0%yoy) which was within ours and consensus’ expectations, accounting for 23.5% and 23.0% of full years forecasts respectively. The growth in earnings was mainly due to better control of cost of sales which marginally declined by 0.1% and the one-month effect of the container tariff hike on 1 March 2019.

1QFY19 container throughput soared +12.4%yoy. The total container throughput in 1QFY19 grew by +12.4%yoy to 2.5m TEUs, reversing the -7.4%yoy decline seen in the same period last year. Bulk of the growth came from the transhipment volume which soared +15.5%yoy in 1QFY19 underpinned by contribution from intra-Asia trade and a low base effect. We also noted that its dependency of cargo heading to the U.S was low at 5.2% of total container throughput. This shielded the effects from the frontloading of cargo in 4QFY18. Meanwhile, gateway volume grew at a tune of +6.5%yoy in 1QFY19 compared to +26.2%yoy in 1QFY18. The shrinkage in gateway volume was mainly due to the high base achieved last year with volumes staying above 0.75m TEUs since 4QFY17.

Gateway to transhipment ratio still commendable. The ratio of gateway to transhipment volume as of 31st March 2019 stood at 32:68 in 1QFY19 which is still commendable. This provides some buffer for the company’s earnings as yields for gateway cargo are higher than that of transhipment.

Looking ahead. With extra services from Ocean Alliance effective from April 2019 combined with a low base effect from the consolidation of shipping alliances last year, we believe that 2QFY19 will be a stronger quarter. Meanwhile, we expect lower growth trajectory in 2HFY19 amidst effect of a higher base observed in 2HFY18. As such, we maintain our container throughput growth estimates at +3.4%yoy, which commensurate with our external trade growth forecast of above +3.0%yoy for 2019. In addition, this is also within the management’s guidance of three to eight percent growth for FY19.

Source: MIDF Research - 29 Apr 2019