We maintain HOLD on Westports. The Group's FY24 core net profit (CNP) exceeded our estimates slightly by 3% largely due to lower costs of sales. We believe the group's total throughput growth has normalised at current levels as Westport registered record high volume of 10.98 mil TEUs for FY24 despite the loss of key transhipment cargo volume. Moving forward, we expect the Group to deliver low single-digit throughput growth. Though valuation appears unappealing at this juncture, we believe further clarity on the quantum and timing of a tariff hike (in-line with Westports Phase 2) could serve as a key re-rating catalyst for the company. We maintain our target price (TP) at RM4.50/share based on 1-yr forward PER of 16.5x, at par to its 5- year average.

• Slightly above estimates, maintain hold on low single digit throughput growth . Westports' FY24 CNP of RM897mil (+15% YoY) exceeded our forecast at 108% of our estimate but was within street's expectations. The variance was due to a lower cost of sales as depreciation expense declined by 9% due to spread of asset life over a longer period under the new concession agreement. Additionally, the performance was largely driven by stronger gateway volume (+8.5% YoY) despite the loss of key transhipment volume due to positive fallout from the China+1 strategy and front loading of cargoes ahead of President Trump tariffs. Despite raising our earnings by 6% to 7% for FY25 to FY26 to account for a lower cost of sales assumption, we revised our target PER lower to 16.5x (from 17.7x previously) as container cargo throughput is expected to grow at a meagre low single digit in the medium term and hence maintain our TP at RM4.50/share.
• Dividend payout policy remains intact, DRP likely to be finalised soon. Westports declared a final dividend of 10.86 sen which brings full-year FY24 DPS to 19.75sen/share. This comes to at 7% higher than our estimate but was within Westport's dividend payout policy of 75%. For reference, this translates to a commendable yield of 4.5% against current price. Further to this, we expect the much-anticipated dividend reinvestment plan (DRP) to be finalised this year. We gather this will involve a 5- year programme and a portion of the dividends from the 75% dividend payout will be eligible to be reinvested into additional shares of Westport.
• Tariff hike presents positive re-rating catalyst for Westports. Managements expect formal announcement on the quantum and timing of the tariff hike in the 1HFY25. We believe this is likely as the Group will soon begin reclamation works for Westports Phase 2. Our sensitivity analysis shows, based on a a 15% hike for tariffs - similar quantum to the previous hike in 2015 - our earnings forecast for FY25-FY27 will increase by 12% to 20%. We maintain our forecasts for now pending the announcement.

Source: AmInvest Research - 24 Jan 2025