• Maintain NEUTRAL and MYR4.32 TP, 9% upside and c.4% FY22F yield. Results came in broadly within expectations, with 1Q22 earnings showing negative growth from higher operating costs and tax expenses. Despite the improved yard density seen in 1Q22 from the easing of lockdowns, renewed headwinds on the geopolitical front compel us to maintain our conservative stance on volume throughputs – staying cautious of a shift in consumption post pandemic, and the risks associated with supply chain disruptions from the lockdown in Shanghai.

• Within expectations. Westports recorded 1Q22 earnings of MYR152m. Standing at 22% of both our and consensus’ FY22 estimates, the results are deemed to have fallen broadly within expectations. YoY, 1Q21 revenue saw muted growth of 4%, underpinned by the 5% YoY growth in container revenue, thanks to contributions from value-added services (reefer, storage needs etc.). In the midst of the current supply chain challenges, TEU growth for the quarter declined to 2.39m TEUs. 1Q22 earnings fell by 27% YoY on the back of higher operational costs (namely fuel costs, +52% YoY) and electricity costs (+17% YoY), as well as higher tax expenses partly driven by Cukai Makmur. No dividends were declared for the quarter.

• Outlook. While yard congestion issues prevalent in 2H21 have eased in 1Q22, with utilisation rates now at c.85%, we keep our conservative view on throughput volumes, in light of the ongoing lockdown in Shanghai. With China’s strict zero-COVID policy, we expect volumes to remain soft through 2Q22, at the very least. Note that most of Westports’ transhipment is regional, with Intra-Asia container throughput making up 60% of its total volumes. Also, shifts in consumption post easing of restrictions – now in favour of services (as opposed to goods) – would also lead to the further softening of throughput volumes. That said, we keep our conservative TEU throughput growth assumption of 2%, in line with management’s guidance of 0-5% volume growth for FY22. Elsewhere, the award of the concession for the expansion of Westports 2 is still pending approvals from authorities, and are only expected to come through in 4Q22 at the earliest. Note that Westports is also in pole position to be included in the KLCI component stock list if Inari Amertron (INRI MK, BUY, TP: MYR3.59) drops out.

• Maintain NEUTRAL. We make no changes to our earnings forecasts at this juncture, as results were in line. Our TP has incorporated a 2% ESG premium to its intrinsic value of MYR4.24, given its ESG score of 3.1 which is above the country median. Our TP implies a 20x FY22F P/E, which is around -1SD from its 5-year average rolling forward P/E – which we believe to be justified, given the unexciting near-term TEU volume growth outlook.

• Risks to our call include the lower/higher-than-expected TEU volumes and lower/higher-than-expected operating costs.

Source: RHB Research - 28 Apr 2022