Review

• Westports’ FY23 core profit of RM778.5mn beat our expectations but within consensus forecast. The variance was largely due to higher-thanexpected gateway volume.

• FY23 core profit increased 16.1% YoY to RM778.5mn due to the absence of prosperity tax. At the pre-tax level, the earnings grew by 9.9% YoY to RM1.0bn, mainly driven by higher gateway volume and reduction in cost of operations.

• FY23 transhipment and gateway volume grew 4% and 14% (Fig 1) to 6.4mn and 4.5mn TEUs, respectively. However, the increase in container revenue was a meagre 1.6% (Fig 2) as revenue per TEU or value-add service revenue slipped after yard congestion normalised in FY23. Overall, the movement of containerised cargoes was strong throughout the last four quarters, especially gateway volume, which benefitted from robust intra-Asia trades (Fig 4).

• FY23 total cost of sales declined by 1.0% YoY to RM853mn, despite increases in throughput. This was underpinned by 18% decline in fuel cost, which more than offset the rise in the manpower (+7.5%) and electricity costs (+18.9%) (Figure 3) post ICPT adjustments.

Impact

• We finetune our FY24/25/26 earnings to RM965/1,039/1,081mn after incorporating FY23 earnings into our forecasts.

Conference call takeaways

• The robust intra-Asia trade can be attributed to China + 1 strategy, which clearly benefitted Southeast Asian countries in terms of foreign direct investments, according to management. Meanwhile, the red sea crisis would continue to affect global shipping and cause shipment delays. Having said that, the situation is not alarming as the freight volume remains high thanks to resilient US consumptions. Considering all these factors, management expects Westports would achieve a low single-digit growth in FY24 throughput versus TA’s assumptions of 4% growth.

• With regards to port tariff adjustments, management will continue to engage with stakeholders and is hopeful to get a raise after previous hikes in 2015 and 2019. We continue to believe it is a tedious process that will affect Malaysian export competitiveness. As such, we maintain the current tariff until the government approval is granted.

Valuation

• We raise Westports’ DDM valuation higher to RM4.26/share (from RM4.20) after updating the stock beta. Maintain Buy

Source: TA Research - 5 Feb 2024