KUALA LUMPUR (June 3): The port sector is set to perform well in FY21, with both port operators MMC Corp Bhd and Westports Holdings Bhd expected to see higher volume of container throughput this year.

In a note, MIDF Research said it was upbeat on the sector, as global economies have moved from their rock bottoms while consumer consumption stayed robust, thanks to massive economic stimulus.

“Our view is cemented further as we observe encouraging numbers coming in for [the first quarter of 2021] for containers throughput. We opine that this signifies healthy and growing global trade flows despite the unabated pandemic,” said the research house.

“Recap, we have posited that MMC Corp will experience +3.0% year-on-year (y-o-y) for TEUs [twenty-foot equivalent units] growth for FY21. Growth will be driven by recovery of container throughput and conventional cargoes for the group's smaller ports (for example Penang Port, Johor Port, etc), +10.0% y-o-y, in comparison to contraction [of] 17.0% y-o-y in FY20. For Port of Tanjung Pelepas, we apply a more conservative assumption of similar performance to last year at 9.85 million TEUs.

“We hold similar positive view for Westports. Management guided for low single-digit growth, operationally. We translate this to projection of +5.0% y-o-y growth to 11.01 million TEUs,” it noted.

MIDF Research added that the conclusion Westports’ concession agreement with the government in regards to Westports 2 this year could be a positive development for the port operator.

Westport 2’s expansion plan is still expected to increase capacity by roughly 50% to approximately 28 million TEUs per annum by 2040, allowing the port operator to compete more effectively for transhipment volumes against Port of Singapore, which has plans to raise capacity from around 40 million TEUs to 65 million TEUs by 2040.

However, MIDF Research told investors to keep an eye on the level of recovery and growth for operational statistics of both companies, as lower-than-expected quarterly throughput could be a preliminary signal of underwhelming performance due to the economic rebound not panning out.

“Furthermore, the lagging impact between successful vaccination programs and economic growth might be longer than expected due to cautious populace and careful governments,” it added.

At this juncture, MIDF Research is “neutral” on the sector as the recovery remains at a nascent stage, with bullish projections possibly derailed by numerous challenges arising from the pandemic.

“The pandemic is still raging, and vaccine roll-outs are still in [their] infancy despite some remarkable progress. Furthermore, possible regional supply chain congestion and localized outbreak of Covid-19 infection in ports facilities are still real possibilities that will negatively impact the performance of port players,” it added.

MIDF Research maintained a “buy” rating on MMC Corp with a higher target price of RM1.40 (from RM1.2) to account for the recent price hike. It believes that MMC Corp's share price still has room to soar given the low valuation that the company is currently trading at below -1 standard deviation at 9.6 times price-earnings ratio (PER). 

For Westports, it maintains a “neutral” stance with a higher target price of RM4.45, from RM4.32 previously.

At the time of writing, MMC Corp's share price rose six sen or 5% to RM1.26, after 21.54 million shares were traded. It had a market capitalisation of RM3.84 billion.

Meanwhile, Westports shares climbed up one sen or 0.23% to RM4.33, after 266,300 shares exchanged hands, for a market value of RM14.77 billion.