Review

• Westports Holdings’ (Westports) FY24 core profit of RM892.7mn was in line with expectations at 98.4% of our forecast and 104.7% of consensus estimates. For this period, the company declared a second interim dividend of 10.86sen/share, bringing the total dividend to 19.75sen/share for FY24, in line with the 75% dividend policy.

• FY24 adjusted PBT and core profit jumped 12.7% and 14.7% YoY to RM1.1bn and RM892.7mn, respectively. This was driven by revenue growth and margin expansion on the back of increase in gateway volume. For FY24, the gateway volume increased by 8.4% YoY to 4.5mn TEUs, which more than offset a 4.4% YoY decline in transhipment to 4.9mn TEUs. This favourable revenue mix (Figure 1), coupled with the declines in depreciation and fuel (Figure 3), have contributed to 1.5%-pts increase in PBT margin.

• On QoQ basis, 4Q24 core profit grew at a faster pace at 12.7% versus revenue growth of 7.3%, with a higher adjusted net profit margin of 41.8%. The superior earnings growth was driven by higher gateway volume as well as lower effective tax rate (15.5%) due to investment tax allowance. For this quarter, transhipment volume has recovered to 1.6mn TEUs, up 11% QoQ, while the gateway volume remained strong at 1.3mn TEUs.

Impact

• We fine-tune our FY25-26 earnings projections lower by 4.4-4.5% after incorporating FY24 earnings into our forecast.

Outlook

• Management is cautious about the FY25 outlook, expecting throughput to grow by 0-5%. They believe that if the 10% tariff on Chinese exports imposed by the Trump administration were to occur, it would likely expedite the adoption of the China + 1 strategy, benefiting ASEAN and other countries. However, this benefit would diminish if President Trump were to impose tariffs on these countries as well.

• Westports would propose a 5-year dividend reinvestment plan this year as part of the capex funding requirement for Westports 2.0 expansion. The company will maintain the 75% dividend policy and its 2 largest shareholders, Pembinaan Redzai and South Port Investment, have pledged to fully reinvest the electable of their dividends into new shares.

• In our opinion, the lingering uncertainty on Trump tariff would not necessarily lead to lower global trade if China and EU countries were to increase the purchase of US exports to reduce the trade surplus with US.

• The intention of President Trump taking over the Panama Canal is expected to have a neutral impact as we do not see any potential operational risk, which is unbearable to every trading nation.

Valuation

• We reduce Westports’ DDM valuation to RM4.72/share (from RM4.80) after the change in earnings projections. Maintain HOLD on Westports.

Source: TA Research - 24 Jan 2025