• Maintain BUY and DCF-derived MYR4.52 TP, 16% upside and c.5% yield. 1Q24 results and container throughput were in line with our and consensus’ expectations. The monthly gateway volume handled by Westports during this period were the highest on record, signalling a recovery in regional trade activities. Despite the Red Sea crisis in 1Q24 – which dragged Asia-Europe volumes – the company remained largely shielded – this was thanks to resilient intra-Asia trade.

• Meeting expectations. Westports posted a 1Q24 core operating profit of MYR204.5m (-1.1% QoQ, +12.5% YoY), ie at 25% of our and Street’s full year estimates. Segmental-wise, container revenue during this period was relatively stable at MYR470m (+2.2% QoQ, +8.0% YoY), outpacing the growth in container volumes due to higher charges for gateway boxes. Conventional revenue grew by 4% despite a 4% reduction in volume – thanks to the strong growth in break bulk volume, which yields a more favourable revenue mix. Revenue/TEU also improved 9.4% QoQ (+2.8% YoY) to MYR175.40 thanks to the higher gateway-to-transhipment ratio.

• 1Q24 throughput analysis. Westport managed a total of 2.68m TEUs (-6.6% QoQ, +5.1% YoY) in 1Q24, with transhipment and gateway constituting c.55% and c.45% of total volume. Gateway volume marked another historical high – growing by 16% – whereas transhipments eased by 3%. 1Q24 container volumes were within our expectations (23.3% of our full-year FY24 container assumptions). Geographically, intra-Asia regional trade (constituting c.68% of container volumes) continued to underpin overall volume, posting a robust 12% YoY growth. Asia-Europe containers (constituting c.12% of 1Q24 container volumes) experienced a decline of 34% YoY. This was due to the longer route around the Cape of Good Hope as a result of the Red Sea crisis during this quarter.

• Valuation. We make no changes to our earnings assumptions and TP as results were in line. Our economics team reaffirms its optimistic stance on Malaysia's trade prospects for 2024, supported by: i) A more favourable global and regional economic landscape, ii) the bolstering economic performance of China, and iii) a resurgence in global technology cycles, which is contributing to renewed acceleration. We believe Westports will be the best proxy for this trade recovery theme, given that the intra-Asia segment accounts for 65-67% of the company's throughput volumes. Westports’ current valuation still provides an attractive entry point, trading 1SD below its historical average P/E of 16.9x. Our MYR4.52 TP includes a 2% ESG premium as Westports’ 3.1 ESG score is above the 3.0 country median. Key risks: Lower-than-expected TEU volumes, higher-than-expected opex, and supply chain disruptions.

Source: RHB Research - 3 May 2024