• Still NEUTRAL, with new DCF-derived MYR4.12 TP from MYR3.60, 9% upside, c.5% yield. FY23 results exceeded our and consensus’ expectations marginally. Monthly container volumes handled by Westports in Dec 2023 were at a record high, signalling a recovery in regional trade activities. The group also declared a final interim dividend of 8.7 sen.

• Ending the year on a higher note. 4Q23 core operating earnings were at MYR206.1m (+5.7% QoQ, +29.7% YoY), bringing FY23 earnings to MYR779.4m (+23.4% YoY). This exceeded our and Streets’ full-year estimates at 105% and 104%. In terms of segments, 4Q23 container revenue was relatively stable at MYR460m (+5% YoY) despite an 11% increase in container volumes due to a much lower value-added services (VAS) contribution. Storage charges were also lower as containers’ average dwell time eased by >20%.

• FY23 throughput analysis. Westports managed a total of 2.87m TEUs (+5% QoQ; +11% YoY) in 4Q23 with transshipment and gateway constituting about 57% and 43% of total volume. FY23 container volume reached 10.88m TEUs, largely within our expectations (103% of our FY23 container assumptions). Container volumes exceeded Westports’ initial guidance of low single-digit growth, due to repositioning of empty boxes in 1H23 and stronger gateway TEUs in 2H23, especially in Dec 2023. Geographically, intra-Asia regional trades (c.65% of container volume) continued to underpin overall volumes, with a robust 12% YoY growth.

• Outlook. RHB Economics is anticipating a stronger recovery in 1H24, buoyed by the resilience of the US and ASEAN economies, rebound of the global technology cycle, and sustained economic growth in China. We revise FY24- 26F container volumes up by 5-8% on the back of growing evidence of improved trade activities in China and regional economies. Nevertheless, management still has a cautious stance on 2024 throughput growth.

• Valuation. Post results, our FY24-26F earnings are largely unchanged. However, we lowered our WACC to 5.6% from 7.3% following updates to our debt-to-equity ratio target. Our DCF-derived TP is now MYR4.12 after incorporating a 4% ESG discount based on Westports’ ESG score of 2.8. We maintain our NEUTRAL call as Westports is fairly valued, with an implied FY24 P/E of 16.3x, closely aligned with its historical average of 16.8x and that of Malaysian peers (17.2x).

• Downside risks: Lower-than-expected TEU volumes, higher-than-expected operating costs, and higher-than-expected tariff revision. The converse represents upside risks.

Source: RHB Securities Research - 5 Feb 2024