KEY INVESTMENT HIGHLIGHTS

• Continued weakness expected in Asia-Europe transshipment • High yard occupancy trends towards normalisation
• Anticipating full-year container growth of +4.2%yoy
• No changes to forward earnings estimates
• Maintain NEUTRAL with an unchanged TP of RM4.30

Ongoing weakness in Asia-Europe transshipment. We expect Asia- Europe transshipment to continue to be weak due to irregular vessel calls and blank sailings resulting from the Red Sea crisis. This trade lane has witnessed a -10.0%yoy decline in overall container volume in 1HFY24.

We anticipate that the intra-Asia trade lane (historically accounting for over 60% of total volume) will remain the volume driver, with it showing a +6.5%yoy growth during the same period, largely driven by gateway volume. Some carriers have also reportedly restructured services and redirected vessels to prioritise the Asian region, driven by their overall strategy rather than in direct response to the disruption.

High yard occupancy trends towards normalisation. Westports may still see fewer scheduled container vessel calls due to Red Sea rerouting and regional congestion, but it has benefited from ad-hoc calls and could see this trend continue. A similar situation was observed at neighboring Northport, which reportedly received 171 ad-hoc calls from Jan-24 to Aug-24. This has contributed to the high container yard occupancy at Westports, which peaked at 100% in Jun-24 but has reportedly declined closer to 75%. However, this level is still above the ideal 65% seen in Dec-23, indicating value-added services (VAS) revenue could remain elevated in 3QFY24, even as it normalises. To note, VAS contributed 21.6% to container revenue in 2QFY24 (2QFY23: 18.4%).

Outlook. Management continues to project a low single-digit growth in container volume for FY24E. As of 1HFY24, container volume recorded a +3.1%yoy increase (gateway: 11.2%yoy, transshipment: -2.6%). At least for the remainder of the year, the contribution of gateway volume to overall volume could stay in the 40% range (an increase from the historical 30%), benefitting Westports as gateway operations involve higher container handling charges. We expect container volume in 2HFY24 to be up by +2.2%yoy to achieve our full-year growth target of +4.2%yoy. Note that 2HFY23 had a high base for gateway containers due to competitive local currency and foreign direct investments (FDIs) that resulted in containerised exports.

Maintain NEUTRAL. There were no changes made to our earnings estimates, and our DCF-derived fair value remains at RM4.30 (WACC: 7%, g: 3%). The share price has risen by +16.3% year-to-date, and the stock is currently trading at 15.6x FY25F EPS, which is near its 5-year historical average. Key upside for the stock includes a larger-than- expected tariff increase and stronger-than-expected container volume.

Source: MIDF Research - 10 Oct 2024