Westports’ 1H14 earnings came above our and consensus estimates,driven by higher throughput that resulted in margin-boosting economies of scale. Thus, we raise our FY14F/FY15F earnings by 2%.Looking ahead, key earnings catalysts would be the approval of thelong-overdue tariff hike and the extension of the investment tax allowance. Maintain BUY, with our DCF-derived FV higher at MYR3.29. 

Above expectations. Westports’ 2Q14 earnings grew by 20% y-o-y,underpinned by the higher throughput handled (+14% y-o-y) and its yields (1.9-2.5% YTD). The higher throughput led to economies of scale,which in turn boosted its 1H14 EBITDA margin by 0.7ppt to 52.5%. Its 1H14 core earnings of MYR232m are at 47% of our full-year forecast,more than the 43% it achieved last year. As such, we deem the results as an outperformance. Note that our estimate is 5% above the consensus forecast. A 5.1 sen interim DPS was also proposed, as expected. We raise our throughput projection to 7.0% from 6.5% for FY14, while our 4.8% growth estimate for FY15 stays unchanged. That, together with the margin improvement, prompts us to raise our earnings projections by 2% each for FY14 and FY15. 

Briefing takeaways. Management raised its annual container throughput growth to 7-13% from 6-12%. We estimate container throughput to grow 7%, which assumes volume to be flat q-o-q over the subsequent quarters. Adding 1% to our initial projected growth rate would boost earnings by 0.8% (MYR4.1m). Also, the future expansion of the port (ie its CT8 terminal) may have to be done earlier than scheduled. Management is expected to firm up the schedule by 4Q14. The CT7 terminal is expected to be fully operational by year-end and this could further ease congestion, which may lead to improving operating efficiencies and margins. The timeline for the tariff hike approval is still unknown at this juncture. Meanwhile, Westports has applied for another 5-year extension for the investment tax allowance (ITA) allocated for expanding the terminals up to CT9. The ITA expires this year but it has only spent its capex for up to CT7. CT8 and CT9 have yet to be constructed. We think it is likely that the extension will be approved. 

Maintain BUY. The DCF-derived FV rises to MYR3.29 (from MYR3.23).Westports is trading at 18.5x FY15 P/E, ie a 4% premium to its comparable peers, as it is the only listed major transshipment port in Asean. The stock offers a decent dividend yield of 4%.

Source: RHB