Review

• Westports’ 9M23 core profit of RM573.0mn was within expectations at 78.5% of our full-year forecast and 79.5% of consensus estimates.

• 9M23 core profit surged 23.4% YoY to RM573.0mn due to the absence of prosperity tax. At the pre-tax level, the earnings grew only by 7.3% YoY to RM742.7mn, mainly driven by fuel cost normalisation. 9M23 total revenue was little changed at RM1.5bn despite higher container throughput. This was due to normalisation of storage income as yard congestion eased, along with a drop in conventional revenue amid decline in break bulk volume. Container throughput grew 7.2% YoY to 8.0mn TUEs underpinned by strong gateway volume (11.9% YoY) and moderate growth in transhipment (4.2%) (Figure 1).

• The total cost of sales declined by 2.0% YoY for 9Q23 on the back of lower fuel expense, which contracted by RM36mn or 23.5% YoY. This was more than offset the rise in the manpower (+8.5%) and electricity costs (+18.9%) (Figure 3). On QoQ, however, the fuel expense increased by 19% in 3Q23 and would likely remain elevated in 4Q23, no thanks to the rise in geopolitical tension in the Middle-East.

Impact

• No change to our FY23/25 earnings projections. We are keeping our throughput growth assumptions of 3%/4%/2% for FY23/24/25 unchanged. Conference call takeaways

• The 11.9% growth in gateway volume was driven mainly by increases in exports/imports of recycle papers, glass and solar panels, and this has tilted the gateway mix to 40% from 30% before. This trend would likely persist due to China-plus-one model, which has resulted in increased FDIs in Malaysia. Meanwhile, the 4% growth in transhipment was supported by resilient world consumptions, especially the US.

• Westports 2.0 is a step closer to full execution, awaiting signing of concession agreements with the government by the end of this year. Management reiterates its plans of using debt-funding for first year of capex requirement and would propose equity-funding one year after.

• Management expects its container volume to grow at a low-single digit rate in 2024. We think this is achievable as the higher-than-expected real GDP growth in the US in 3Q23 (@4.9%) and the possible end of FED tightening campaign would bode well for global trades. This is expected to weather the slowdown in China’s GDP to 4.6% in 2024 from an estimated 5.4% in 2023, based on IMF forecast.

Valuation

• Maintain Buy on Westports with unchanged DDM valuation at RM4.00/share based on a discount rate of 6.2%.

Source: TA Research - 10 Nov 2023