Review

• Westports Holdings’ (Westports) 1H24 core profit of RM408.4mn accounted for 42.3% of our full-year forecast and 49.5% of consensus estimates. We consider this to be within expectation as depreciation and amortisation are expected to reduce in 2H24 under the new concession terms. For this quarter, the company proposed a first interim dividend of 8.9sen/share, which was 0.7sen higher than the same period last year.

• 1H24 adjusted PBT and core profit grew 8.5% and 8.1% YoY to RM534.4mn and RM408.4mn, respectively. This was driven by revenue growth and margin expansion on the back of an increase in gateway volume. For this period, the gateway volume surged 11.2% YoY to 2.4mn TUEs, which more than offset a 2.9% YoY decline in transhipment to 3.0mn. This favourable mix contributed to a 3.8% YoY rise in revenue and 0.7%-pts increase in PBT margin (Figures 1 & 2)

• 1H24 total cost of sales expanded by 3.3% YoY to RM433mn in tandem with the growth in total throughput. The increase came mainly from fuel (+9.5%), which accounted for 19% of the total cost of sale in 1H24 versus 18% a year ago (Figure 3).

Impact

• No change to our FY24-26 earnings estimates.

Outlook

• According to the IMF, the world economy is expected to grow at a lacklustre 3.2% in 2024 and 3.3% in 2025. The IMF recently revised the US growth to 2.6% (from 2.7% previously) this year, indicating a sluggish economic outlook that would not bode well for global trades.

• Moreover, the intensifying trade war between the US and China and potential new tariffs or tariff hikes on imported goods in the US would complicate global trade further. Although we believe Malaysia would benefit from the “China plus One” strategy, the relationship between the US and Malaysia, as well as other nations, is still uncertain post-US presidential election.

Valuation

• We raise Westports’ DDM valuation to RM4.86/share (from RM4.72) after factoring in the ESG premium of +3%. We continue to like Westports for its sustainable earnings, which would translate to stable future dividends. However, the risk is looming ahead of US presidential election and the upside is limited now after the recent price rally. As such, we downgrade Westports to Hold from buy.

Source: TA Research - 29 Jul 2024