Westports’ FY14 core earnings (+14.8% YoY) were within our but above consensus  estimates.    Maintain  BUY  and  DCF-derived  MYR3.96  TP(WACC of 6.2%, 13.1% upside).  Earnings growth was  a combination of higher volume and yields, and  improved  operating efficiencies. We see the  impending  tariff  increase  as  an  upside  catalyst  aside  from  the company’s ongoing margins expansion.

Within.  FY14  core  earnings  of  MYR526m  (+14.8%  YoY)  were  in  line with  our  but  5%  above  consensus  estimates.  Earnings  growth  was  on higher  20-foot  equivalent  units  (TEUs)  handled  (+12%  YoY)  and improved yields (+1.1% YoY), and better operating efficiencies (+0.7ppts improvement in EBITDA margins  to 53.4%). The  lower tax paid  (-18.3% oY) also contributed heavily to bottomline. The notable exceptional item was  a  MYR11.8m  impairment  for  two  uncertified  (by  safety  standards) cranes. A DPS of 6.15 sen was proposed (FY14 DPS: 11.25 sen).

Briefing highlights.  Management maintains  its 5-10% YoY TEU  growth guidance for FY15 (ours:  8.3% YoY) while  the non-TEU  cargoes should stay flat (ours:  2%  YoY). As of January, throughputs grew by 16% YoY (gateway:  17%  YoY,  transshipment:  15.5%  YoY).  Encouragingly, neighbouring  Northport,  which  has  seen  a  declining  trend  in  its throughputs,  also witnessed growth in January (+13% YoY).  Meanwhile, the  Finance  Ministry  has  rejected  Westports’  extension  on  its  expired investment tax allowances  –  not surprising given the slump in oil prices hitting government coffers. This does not impact our numbers as we had not factored  this  in earlier. Westports  will  consider an appeal when the economic situation appears more conducive. The impending tariff hike is awaiting the green light from the Transport Ministry, which has not made any objections to the hike request (minimum: 12%, maximum 50%), with a timeline for approval as early as mid-2015. If the minimum materialises (effective  1  Jan  2016)  this  will  see  our  DCF-derived  TP  nudged  up  toMYR4.05  on the 8% FY16 earnings upgrade.  Management sees the  O3 shipping alliance coming into  full swing in 2H,  where we estimate a net addition of 500,000 container boxes annually in its initial years.

Forecasts. FY15/FY16 earnings raised 1.3%/0.3% on housekeeping.

Maintain  BUY.  We  see  the  impending  tariff  increase  as  an  upside catalysts  aside  from  Westports’  ongoing  margin  expansion.  EBITDA margin of 54.8% in 4Q14 was  its highest since we  2010, and with more volume  ahead  from  the  O3  alliance,  this  could  only  grow  stronger. Maintain BUY with a DCF-derived TP of MYR3.96 (WACC of 6.2%). 

Source: RHB