Westports Holdings Berhad - Higher than expected 4Q
Fri, 24-Jan-2025 07:07 am
by Jayden Tan • Apex Research

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WPRTS (5246)

Target Price (RM)

5.080

Recommendation

Buy

Summary

  • Westports recorded 4QFY24 profit of RM256.7m (+10.1% qoq, +24.7% yoy) bringing full year FY24 CNP to RM898m (+15.2% yoy), exceeding expectations at 107% of our forecast (RM842m) and 105% of consensus (RM852m), driven by higher-than-expected revenue per container and rental income.

  • Growth in FY25 is expected to record low single digis, supported by resilient volumes, with potential upside from tariff hikes.

  • Tweaked FY25 earnings upward by 1% on reduced depreciation and tax rate assumptions and maintain BUY with an unchanged TP of RM5.08 (DCF-based, 6.1% discount rate), reflecting optimistic long-term prospects from resilient gateway volumes, stable transshipment customers, and potential tariff rate hikes.

 

Results exceeded expectations. FY24 core net profit of RM898m (+15.2% yoy) came in slightly above forecasts, accounting for 107% of our core net profit projection of RM842m and 105% of the consensus estimate of RM852m. The positive variance was primarily driven by higher-than-expected revenue per container and rental income.

 

yoy. 4QFY24 core net profit expanded +24.5% yoy to RM256.7m, driven by stronger revenue contributions from higher revenue per container, supported by increased gateway volumes and higher Value-Added Services (VAS) contribution as well as higher rental income from front-loaded revenue recognition at the early phase of sublease renewal rate upgrades for customers. Quarterly revenue increased by +21.9% yoy to RM675.4m.

 

qoq. Core net profit rose by +10.1% qoq, supported by a lower effective tax rate (tax expenses in 4QFY24: RM47m vs. RM70.6m in the previous quarter) due to the investment tax allowance claimed for terminal truck purchases at the end of 2024. Quarterly revenue increased by +18% qoq, driven by higher construction revenue.

 

Outlook. We expect low single-digit growth for Westports in FY25, as the current quarter's surge in performance is unlikely to be sustainable. Recent quarter’s improvement was driven by an influx of shipping cargoes activities ahead of uncertainties surrounding former US President Trump’s tariff policies, as well as the front-loading of rental income recognition. While uncertainties surrounding protectionist policies remain on the cards, we are optimistic over Malaysia’s position as one of the key beneficiaries of global trade diversions, which is expected to support resilient gateway volumes moving forward. Transhipment volumes are projected to remain stable, supported by the potential full implementation of a Gaza ceasefire deal, which could ease Red Sea voyage disruptions, and an improving global economic outlook. Additionally, we gathered that the recent reshuffle of shipping alliances will have minimal impact on Westports, as its main transhipment customers remain stable and intact. Furthermore, any potential hike in tariff rates, currently under discussion for Westports’ cargoes, presents a potential upside to the Group’s performance and our forecasts.

 

Earnings Revision. We tweaked our earnings forecasts for Westports in FY25 marginally higher by approximately 1%, reflecting the impact of lower depreciation expenses and a reduced effective tax rate.

 

Valuation. Re-iterate our BUY recommendation on Westports with a target price of RM5.08, based on the DCF-TP method, using a discount rate of 6.1%.

 

Risk. Uncertainties of Trump’s trade policies. Stiff regional competition. Delay of the expansion of Westport 2.

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