We expect earnings to rise 7% YoY in 1Q15, with annual throughput percentage growth in the mid-teens. Maintain BUY. Our DCF-based TP rises to MYR4.85 (15% upside) from MYR4.62 as we lift our FY15-17 earnings projections by 3.6-5%. Record-low freight rates leading to industry consolidation is conducive for Westports’ customers - who are among the world’s leading players - to steal market share.

• Strong volume. We expect Westports – scheduled to report its financial results on 30 Apr – to book healthy earnings, driven by higher container throughput. We estimate that its 1Q15 YoY and QoQ throughput growth could be somewhere in the mid-teens and low single digits respectively.This is supported by our findings that the number of vessels called into the terminal (based on the Port Klang Authority’s schedule) had grown by close to 20% YoY in 1Q15, primarily driven by the 27% YoY increase in vessels calls from CMA CGM (unlisted), which is Westport’s biggest customer. As we expect its throughput to increase in 2H15 from the Ocean Three alliance, we expect growth to remain sustainable as vessels calls for April have grown by 9% thus far.
• 7% YoY earnings growth in 1Q15. We expect Westports to report a 7% increase in earnings for 1Q15 on the back of a 12-14% jump in revenue,as higher transshipments could dilute overall yields. While a margin expansion could result from the improved economies of scale, higher ta x rates would offset this. On an EBITDA level, a low double-digit growth in earnings would be possible, in our view.
• Record-low container rates. The Shanghai Containerised Freight Indexis touching new lows, given the overcapacity in container vessels and as some bunker savings are passed on to customers. As more aggressive deliveries of mega-sized vessels are scheduled for 2016, container rates could fall to new lows moving forward, according to Alphaliner. With the smaller container shippers consolidating as losses mount, this could bode well for Westports’ customers, which are some of the biggest container shipping companies in the world.
• Forecasts. We increase our FY15/FY16/FY17 throughput growthforecasts to 12.2%/9.3%/5.2% from 8.3%/8%/5.2% - which raise our earnings estimates by 3.6%/5.0%/5.0% respectively.
• Maintain BUY. The earnings uplift increases our DCF-derived TP to MYR4.85 (from MYR4.62), implying FY15F/FY16F EV/EBITDAs of 18.2x/13.9x – which are above the peer average. We believe the premium is justifiable, given Westports’ superior ROE, strong earnings CAGR, above-average dividend yields and high EBITDA margins.