Review

• Westports’ 1Q24 core profit of RM204.6mn was in line with expectations at 21.2% of our full-year forecast and 25.4% of consensus earnings.

• 1Q24 adjusted PBT and core profit grew 12.5% and 11.9% YoY to RM265.5mn and RM204.6mn, respectively. This was driven by revenue growth and margin expansion as a result of an increase in gateway volume. For this quarter, the gateway volume surged 16.5% YoY to 1.2mn TUEs, which more than offset a 2.6% YoY decline in transhipment to 1.5mn TEUs. This favourable mix has contributed to a 7.5% YoY rise in revenue and a 2%-pts increase in PBT margin (Figures 1 & 2).

• 1Q24 total cost of sales expanded by 3.8% YoY to RM217mn in tandem with the growth in total throughput. The cost increase came mainly from container cost (+4.5%), fuel (+5.3%) and manpower (1.4%) (Figure 3).

Impact

• No change to our FY24-26 earnings estimates.

Conference call takeaways

• We remain sanguine on the outlook for Westports as the rise in FDI has increased gateway volume. According to management, the double-digit growth in gateway volume in 1Q24 would likely sustain the remainder of 2024.
   
• The Red Sea crisis has affected Asia-Europe trade (Figure 4), where the container volume contracted by 18% YoY on this specific trade lane. This was because shipping liners opted for a longer route to avoid Houthi’s attacks. Looking forward, Asia-Europe trades are expected to remain sluggish at 1Q24.

• The tender and award of the land reclamation contract would likely be concluded in 2Q24. With regard to the port tariff adjustments proposal, the public consultation process will begin soon. However, we continue to believe it is a tedious process that will affect Malaysian export competitiveness. As such, we maintain the current tariff until government approval is granted.

Valuation

• We maintain Westports’ DDM valuation at RM4.26/share. Maintain Buy

Source: TA Research - 3 May 2024