Westports Holdings Berhad - Supported by the resilience of gateway volumes
Mon, 29-Jul-2024 07:57 am
by Jayden Tan • Apex Research

Counter

WPRTS (5246)

Target Price (RM)

5.08

Recommendation

Buy

  • Results review. In 2QFY24, Westports reported a core net profit of RM203.7m, reflecting a yoy increase of 4.6%, driven by higher gateway volumes and VAS contribution due to higher container yard occupancy. Revenue for the quarter saw 1.9% yoy growth to RM553.0m. A first interim dividend of 8.89 sen/share, payable on 21 August 2024 was declared.

  • In line with expectations. For 1HFY24, the Group achieved a cumulative net profit of RM408.3m, accounting for 48% and 49% of our and the consensus forecasted net profits of RM842.7m and RM825.6m, respectively.

  • Operations Highlights. Container throughput increased by 1% yoy. Although transshipment dropped by 3% due to port congestion, the decline was offset by a resilient gateway volume, which grew by 7% yoy. The higher gateway volume elevated the gateway-to-transshipment ratio to 44%, up from 41% last year.

  • Industry Highlights. Over the past couple of months, the Red Sea crisis has led to escalating port congestion in Asia ports, impacting Westport as volumes were diverted from other regional peers. However, congestion has eased recently as liners have adapted to rerouting and scheduling changes. For instance, Westport's container yard utilisation has decreased from c.100% in June to c.85% in July.

  • Outlook. As congestion gradually eased, we expect stronger transshipment throughput for in 2HFY24, anticipating low single-digit yoy growth. Despite our optimism over trade activities with Asia and Malaysia, we do not foresee significant volume growth for Westport over the near term as the Group is operating near its maximum practical TEU capacity of 11.5m until the Westport 2 expansion (CT 10 expected completion by 2028). However, the Group is in ongoing discussions with the government regarding tariff adjustments on both container and conventional services, which we expect to bolster the Group's revenue and margin expansion upon approval.

  • Valuation. With the reported results came in line, we made no changes to our earnings forecast. We reiterate our BUY recommendation on Westports with an unchanged target price of RM5.08, based on the DCF-TP method, assuming a discount rate of 5.9%.

  • Risk. Stiff regional competition from other regional peers. Delay of the expansion of Westport 2.
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