• Maintain NEUTRAL with new MYR3.80 TP from MYR4.32, 9% upside and 4% FY22F yield. Results came in slightly below our expectations, as 1H22 saw TEU growth declining by 8% YoY from lower transhipment volumes, coupled with higher fuel costs. We expect TEU growth to remain subdued for the remainder of the year, taking cognisance of Intra-Asia supply chain disruptions – exacerbated by ongoing restrictions in China – as well as post-pandemic shifts in consumption trends.

• Below expectations. Westports recorded 2Q22 earnings of MYR207m (+36.1% QoQ, +32.1% YoY), bringing the 1H22 figure to MYR314m (- 18.7% YoY). Standing at 46/48% of our/consensus’ FY22 estimates, the results missed our expectations but came in line with consensus’. On a YoY basis, 1H22 revenue grew by 4% from higher contributions from value- added services (reefer, storage needs, etc.). 1H22 container volumes saw an 8% decline to 4.9m TEUs. 1H22 earnings fell by 18.7% YoY from higher fuel costs (+83.3% YoY), having purchased diesel at an unsubsidised price, as well as higher electricity costs (+13.6% YoY). The group announced its first interim ordinary dividend of 6.91 sen, to be paid on 23 Aug 2022.

• Outlook. Considering the headwinds on the supply chain front and our economists’ expectations of slowing export momentum in 2H22 on a weak global outlook (FY22F net export of -2.4), we maintain our conservative expectations on throughput growth for the year. Although management guided that July has begun seeing flattish TEU growth YoY, we believe that China’s strict zero-Covid policy continues to place a downside risk to our volume forecasts for the year – taking into account the fact that Intra-Asia container throughput makes up 60% of Westports’ total transhipment volumes. We also believe that revenue growth will be dampened by the further dropping of VAS contributions, following the easing of yard congestions. Additionally, shifts in global consumption trends post pandemic, to now favour services (over goods), brings risk of further weakening throughput volume growth. Elsewhere, the award of the concession for the expansion of Westports 2 is still pending approvals from the authorities, and is only expected to come through in 4Q22 at the earliest.

• Still NEUTRAL. We cut FY22-23F earnings forecast by c.6% after revising our FY22F TEU growth to -5% from +2%. Our new MYR3.80 TP has incorporated a 2% ESG premium to its intrinsic value of MYR3.72 – given its ESG score of 3.1, which is above the country median. Our TP implies a 20x FY22F P/E, which is around its 5-year mean – which we believe to be justified, given the subdued near-term TEU volume growth.

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

Source: RHB Research - 29 Jul 2022