Review

• Westports’ 1H23 core profit of RM377.6mn was within expectations at 55% of our full-year forecast and 53% of consensus estimates. For this quarter, the company declared a first interim dividend of 8.19sen/share, which was 1.28sen/share higher than 1H22.

• 1H23 core profit surged 20.4% YoY to RM377.6mn due to the absence of “cukai makmur”. At the pre-tax level, however, the earnings growth was moderate at 4.6% YoY to RM490.0mn, driven mainly by fuel cost normalisation. 1H23 revenue was little changed at RM1.02bn despite higher container throughput. This was due to normalisation of storage revenue as yard congestion eased. Container throughput grew 7.6% YoY to 5.2mn TUEs underpinned by strong gateway volume (12.6% YoY) and moderate growth in transhipment (4.4%) (Figure 1).

• The operating cost declined by 1.6% YoY in 1H23 on the back of lower fuel expense, which declined by 25.3% YoY. This was more than offset the rise in the manpower (+8.3%) and electricity costs (+20.0%) (Figure 3). The hike in electricity cost would ease as 2H23 ICPT surcharge has been reduced to RM0.17/kWh from RM0.20kWh in 1H23.

Impact

• We raise our FY23/25 earnings projections by 4.7-6.7% after revising FY23/25 throughput growth assumptions to 3%/4%/2% from -1%/6%/2%. Conference call takeaways
• Management attributes the increased container throughput in 2Q23 to competitive local trade and FDIs as well as repositioning of empty boxes. Note that Westports has seen a rise in empty boxes to 29% of total TEUs in 2Q23 (vs 26.5% in 2Q22), alongside significant rise in trade volume in the Intra-Asia trade lane (Figure 4), suggesting that these containers would likely move to China later to cater for latter’s export growth in 2H23.
• Management reiterates that Westports 2.0 concession will be signed in 2H23 without sharing much detail such as changes in tariff and concession duration, and the optimal debt-equity capital structure for Westports 2.0.

• Management expects its container volume to grow at a low-single digit rate for 2023. We think this is possible now as the Federal Reserve believes the U.S. will avoid a recession in 2023, along with IMF’s recent upgrade in global growth to 3% this year and next. As such, we revise our FY23/24/25 throughput growth assumptions to 3%/4%/2% from - 1%/6%/2%.

Valuation

• Following the revisions in earnings and dividend, we raise Westports’ DDM valuation to RM4.00/share (from RM3.85/share previously). Upgrade Westports to Buy from Hold after the recent price correction.

Source: TA Research - 28 Jul 2023