Review

• Westports Holdings’ (Westports) 9M24 core profit of RM636.1mn came in below our expectation but within consensus forecast, accounting for 66% and 77%, respectively. The variance was largely due to higher-thanexpected tax expense. At PBT level, the 9M24 core profit for 71% of our full-year forecast.

• 9M24 adjusted PBT and core profit jumped 11.7% and 11.0% YoY to RM829.7mn and RM636.1mn, respectively. This was driven by revenue growth and margin expansion on the back of increase in gateway volume. For this period, the gateway volume surged 10.3% YoY to 3.6mn TUEs, which more than offset a 5.3% YoY decline in transhipment to 4.5mn. This favourable revenue mix (Figure 1), coupled with the decline in depreciation (Figure 3) due to extended useful life of concession assets, contributed to 1.9%-pts increase in PBT margin.

• On QoQ basis, revenue and adjusted PBT rose 8.6% and 18.1% respectively in 3Q24. In specific, the revenue growth came mainly from value-added services (VAS) and increased gateway volume while transhipment volume remained lacklustre. The transhipment volume slipped 5.2% QoQ and 9.9% YoY to 1.5mn TEUs due to an absence of shipments from Israeli shipping company, Zim, as well as yard congestions.

Impact

• We reduce our FY24-27 effective tax rate to 22-23% (from 18% previously) as we now expect the ITA impact to be felt from FY28 onwards. We downgrade FY24-26 earnings projections by approximately 6%.

Outlook

• In the advent of Trump tariff 2.0, global trade is expected to slow and supply chain would be disrupted further. As such, global shipping companies would take the brunt of slowdown in trades, in our opinion. We are watchful on shipments from China to US, which may spike due to stock-up activity before President Trump takes office in Jan-25. This could potentially reduce vessel calls in the Strait of Malacca, thereby affecting container freight rates in this region.

• According to management, the stock up has already happened before the US election. The uncertainty in US trade policy and China’s tit-for-tat could possibly affect other nations too. If US impose the same tariff on Malaysian imports as well as other nations, it could diminish the “China+1” effects to a certain extent.

• Yard congestions have normalised since September, hovering at 70-80% currently. Management would a conduct thorough analysis on all cargoes to avoid the recurrence of the same issue. Looking forward, management expects the total throughput to grow by low-single digit versus TA’s forecast of 3% growth.

• CT10 is expected to commence operations by 3Q28. As far as equity fundraising is concerned, the company is finalising multi-year dividend reinvestment plan to part finance the capax of est. RM6.3bn for phase 1 development.

Valuation

• We cut Westports’ DDM valuation to RM4.80/share (from RM4.86) after revising the effective tax rate higher for FY24-27. We continue to like Westports for its sustainable earnings, which would translate to stable future dividends. However, the risk is looming ahead of a potential trade war between US and China in 2025. As such, we maintain our HOLD recommendation on Westports.

Source: TA Research - 11 Nov 2024