KEY INVESTMENT HIGHLIGHTS

• 4QFY24 container volume projected at 2.7m to 2.9m TEUs
• VAS revenue may remain elevated amid normalisation
• FY25 container volume is estimated to grow by +3.3%yoy
• No changes to forward earnings estimates
• Maintain NEUTRAL with an unchanged TP of RM4.30

Container volumes are poised for a flat close. To recap, Westports Holdings Berhad's (Westports) container volume for 9MFY24 totalled 8.1m TEUs (+1.2%yoy), accounting for 74% of our full-year forecast.

Breaking it down further, the transshipment volume declined (-5.3%yoy), but this was largely balanced out by robust growth in gateway volume (+10.3%yoy). Management expects FY24 container volume to end flat, revising its earlier low single-digit growth guidance due to shifts in transshipment congestion and subdued market conditions. We estimate that 4QCY24 container volume could range between 2.7m TEUs and 2.9m TEUs.

Steady support for container revenue growth. Container revenue growth (+7.1%yoy in 9MFY24, despite subdued volumes) has been driven by value-added services (VAS) and higher-yielding gateway volumes. Yard occupancy, which hit its bottleneck in Jun-24 following the Red Sea crisis, has reportedly eased below 80% but remains above the ideal 65% seen in Dec-23, suggesting VAS contributions could stay elevated in 4QFY24 despite normalising. The VAS ratio rose to 25% in 3QFY24, up from 22% in 2QFY24, surpassing its usual mid-to-high teens range. Moreover, recall that gateway TEUs hit record highs in 3QFY24, with the gateway-to-transshipment ratio shifting to 46:54 from the historical 30:70 split. Gateway volumes are expected to remain strong, though growth may start to normalise.

Outlook. We expect the overall container volume growth to be predominantly driven by the Intra-Asia trade lane (accounting for over 65% of total volume) which recorded a +3.5%yoy increase in 9MFY24.

This trade lane has been the key contributor to gateway container growth, with import and export volumes rising by +14.0%yoy and +8.0%yoy, respectively, in 3QFY24. For this year, management has guided for low single-digit growth, which we estimate at +3.3%yoy, partly reflecting a potential recovery in transshipment volumes. Container volumes could temporarily rise if shipments are frontloaded ahead of tariffs following Donald Trump's presidential transition, with the impact depending on the tariff scope.

Maintain NEUTRAL. Our earnings estimates remain unchanged, with our DCF-derived target price maintained at RM4.30 (WACC: 7.2%, g: 3%). The last closing price reflects a value of 16.1x FY25F, aligning with its 5-year historical mean. Key potential upsides include a tariff hike expectation or a positive revision in container volume growth guidance.

Source: MIDF Research - 16 Jan 2025