KUALA LUMPUR (April 28): Amid the Covid-19 pandemic, AmInvestment Bank Research has downgraded Westports Holdings Bhd to a “hold” rating from “buy” with a lower fair value of RM3.81 (from RM4.31), as the research firm expects the port operator’s container throughput to contract by 15% in the financial year ending Dec 31, 2020 (FY20).
This is versus the 2% growth that was previously projected, AmInvestment wrote in a report today.
The research house explained that the lower projection is on the back of the much weakened Purchasing Managers’ Index (PMI) outlook across the globe and the forecast by Copenhagen-based container shipping industry expert Sea-Intelligence ApS of a 10% contraction in global container shipping volume this year.
Accordingly, the research house has also slashed its FY20 to FY22 net profit forecasts by 16%, 13%, and 12% respectively.
“For FY21F, we expect Westports’ container throughput to rebound 10% from a low base (versus only a 5% growth we assumed previously),” said AmInvestment.
While Wesports has guided that contraction in container throughput could widen to double digits in the second quarter of 2020 in the worst-case scenario, as the Covid-19 pandemic continues to disrupt port operations, Westports hopes to see some recovery in the second half of FY20 assuming that Covid-19 could be significantly contained by then, said AmInvestment.
On Wesports’ capital expenditure (capex) plan for this year, there is no change to the planned RM400 million capex, comprising the expansion of container yard and liquid bulk jetty, as well as the acquisition of new cranes.
“The outlook for the port sector in the region (Malaysia included) is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports,” said AmInvestment.
“There have been significant relocations of the manufacturing base by multi-national companies out of China to the region due to the rising labour and land costs, exacerbated by the US-China trade war. Westports has charted a long-term plan to capitalise on these,” the research firm added.
“However, we are mindful of the soft patch ahead amidst a major slump in the world economy as well as world trade in the aftermath of the Covid-19 pandemic,” said AmInvestment.
The research house also noted that Westports’ valuations are no longer as compelling after a steep 22% recovery from the recent low of RM2.97.
At 10.25am, shares of Westports rose two sen or 0.54% to RM3.75. This brings its market capitalisation to RM12.79 billion. Year to date, the stock fell some 10% from RM4.21. However, it rose 21.47% from RM3.12 on March 24, 2020.