Westports Holdings Berhad - Higher margin despite lower throughput from transshipments
Mon, 11-Nov-2024 07:19 am
by Jayden Tan • Apex Research

Counter

WPRTS (5246)

Target Price (RM)

5.08

Recommendation

Buy

Summary

  • Westports’ CNP of RM228.0m (+16.9% yoy, +11.9% qoq) in 3QFY24, bringing 9MFY24 CNP to RM636.2m (+63.2% yoy) came in line at 76% and 77% of ours and consensus expectations respectively.

  • Looking ahead, we anticipate gateway throughput to be the primary growth driver, while transshipment volumes are likely to face challenges.

  • We maintain our BUY recommendation with unchanged target price of RM5.08 based on the DCF-TP method, using a discount rate of 5.9%.

     

Results Review

  • Results review. In 3QFY24, Westports posted a core net profit of RM228.0mm, excluding a one-off government income of RM5.1m, representing +16.9% yoy and +11.9% yoy growth, supported by improved operating margins due to lower costs and higher revenue per container TEU. Quarterly revenue grew by +5.6% yoy and +3.5% qoq to RM572.6m.

  • In line with expectations. For 9MFY4, the Group recorded a cumulative core net profit of RM636.2m, representing 76% of our forecasted net profit of RM841.9m and 77% of the consensus estimate of RM830.3m.

  • Operations Highlights. Container throughput declined by 2% yoy and 1% qoq, despite higher import-export volumes, as the drop in transshipment volumes offset gains during 3Q24, due to container volumes being diverted to competitors following previous port congestion, coupled with the Malaysian government’s ban on container entries from Israeli shipping giant - Zim, one of the world's top 20 carriers. Meanwhile, container gateway and conventional volumes remained robust, supported by strong local economic activity and ongoing infrastructure developments. Net margins were boosted by upward rate adjustments and lower depreciation costs following an extension of the concessionaire assets' useful life.

  • Industry Highlights. Ongoing Red Sea crisis, along with challenges such as the impact of US port strikes, uncertainties surrounding former President Trump's diplomatic and trade policies, and persistent global geopolitical tensions, continue to create ambiguous market conditions and headwinds for the industry.

  • Outlook. Over the near term, container transshipment volumes are expected to remain relatively flat due to the aforementioned headwinds. However, gateway volumes are anticipated to be the main driver, supported by the China+1 diversification strategy, currency stabilisation, and domestic developments. Over the longer term, Westports will sustain its competitiveness as a transshipment hub by maintaining alliances within its network by expanding capacity, with the Westport2 expansion of CT10 projected to be completed by 2QCY28.

  • Valuation. As the reported results came within expectations, we kept our earnings forecast unchanged. We reiterate our BUY recommendation on Westports with an unchanged target price of RM5.08.

  • Risks. Stiff regional competition. Delay of the expansion of Westport 2. 

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The report is for internal and private circulation only and shall not be reproduced either in part or otherwise without the prior written consent of Apex Securities Berhad. The opinions and information contained herein are based on available data believed to be reliable. It is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered by this report.

Opinions, estimates and projections in this report constitute the current judgment of the author. They do not necessarily reflect the opinion of Apex Securities Berhad and are subject to change without notice. Apex Securities Berhad has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.

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