• Still NEUTRAL, with new DCF-derived MYR3.60 TP from MYR3.74, 6.7% upside, c.5% yield. 9M23 results and container throughput came within ours but beat consensus’ expectations. We keep our earnings assumptions unchanged as results were in-line. Government has approved the concession for Westports 2’s expansion, with the agreement expected to be finalised by Dec 2023. There is a possibility that Westports could be removed from the FBM KLCI list in the upcoming semi-annual review (cut-off date: 20 November).

• 9M23 results within our expectations. 3Q23 core operating earnings stood at MYR195.6m (+0.4% QoQ, +30.1% YoY). The YoY improvement was due to one-off expenses in 3Q22 – legal-related expenses with Oracle and the Cukai Makmur prosperity tax. This brings 9M23 earnings to MYR572.1m (+23.2% YoY) – within ours but exceeding Street’s full-year estimates at 77% and 79%. Segment-wise, 3Q23 container revenue was flattish at MYR458m (+1% QoQ, +4% YoY) despite a 7% increase in container volume, due to lower storage charges and VAS contribution.

• 3Q23 throughput analysis. Westports managed a total of 2.77m TEUs (+2.2% QoQ; +6.6% YoY) in 3Q23, with transshipment and gateway constituting c.60% and 40% of the total volume. The 9M23 container volume reached 8.01m TEUs, in line with our expectations and accounting for 76.7% of our full-year FY23 container assumptions. It’s worth noting that North Port and Port Tanjung Pelepas both recorded 9M23 throughput declines of 3% and 5% YoY. Westports’ conventional volume of 2.73m MT declined 20% YoY, primarily due to lower dry bulk cargo and containerised break bulk cargo. Geographically, while Asia-Europe routes posted weak numbers, intra-Asia trades (constituting c.66% of container volume) remained resilient, posting a robust 11.6% YoY growth to rebound from a low base.

• Outlook. Looking forward, RHB Economics anticipates a stronger recovery in 1H24, buoyed by the resilience of the US and ASEAN economies, the global technology cycle rebound, and China’s sustained economic growth. Despite the YTD container growth exceeding management's expectations – still falls within a single-digit growth – a cautious outlook is maintained for throughput growth in 2024. This caution stems from the ongoing geopolitical uncertainties.

• We keep our earnings estimates unchanged, but update our ESG and DCF framework for housekeeping purposes as our previous G component score was too optimistic. Our TP is now revised to MYR3.60 – incorporating a 4% ESG discount, based on its ESG score of 2.8. We maintain our NEUTRAL call as Westports is currently fairly valued, with an implied FY24 P/E of 15.6x, trailing closely its historical average of 16.8x and that of regional peers at 17.4x. Key risks: Lower-than-expected TEU volume, and higherthan-expected operating costs.

Source: RHB Securities Research - 10 Nov 2023