Westports Holdings Bhd
(Nov 6, RM4.30)
Maintain buy with a higher target price (TP) of RM4.75: Westports Holdings Bhd posted a third quarter of financial year 2019 (3QFY19) net profit of RM159.2 million, up 11.9% year-on-year (y-o-y), on higher trans-shipment volume, up 17.1% y-o-y. Its cumulative nine months of FY19 earnings formed 72%/73% of our/the consensus full-year forecasts. We expect it to register stronger earnings for 4QFY19 as 4Q is a seasonally strong quarter.
The company’s growth was above expectations with total container throughput rising 13.1% y-o-y to 2.77 million twenty-foot equivalent units (TEUs) in 3QFY19. Gateway volume grew 5.7% y-o-y to 920,000 TEUs.
Westports’ top line rose 10.3% y-o-y for 3QFY19, in line with higher volume and the container tariff hike from March 1. Costs were flattish y-o-y as higher maintenance, repair and electricity costs were offset by lower marine costs following adjustments to the Malaysian Financial Reporting Standards 16.
Marine costs headed south. Earnings before interest and tax grew 13% y-o-y to RM229.7 million, while profit after tax increased 11.9% y-o-y to RM159.2 million.
Westports has guided for a double-digit total volume growth for FY19 on trans-shipment and gateway volumes. We bump up our earnings forecasts by 4% for FY19/FY20/FY21 as we increase our total container throughput growth assumptions of 11%/4%/4% to 15%/4%/4% for FY19/FY20/FY21.
Westports has a land bank of 100 acres (40.47ha) earmarked for logistics companies, with five companies secured for 20 acres each. Rental income will be minimal but more material gains will come from potential volumes from these warehouses.
The proposed expansion of Container Terminal 10 (CT10) up to CT17 is pending negotiations and finalisation of concession terms post getting the approval in principle, expected to materialise by 2QFY20 as the Port Klang Authority has just completed some simulation studies. Westports has finalised the port extension layout and appointed financial advisers. Upon obtaining the concession agreement, Westports would be able to start reclamation works, taking about one year. Capital expenditure for the works would be about RM1 billion. We project that if reclamation works start by the second half of FY20, CT10 should commence operations in FY23.
There are still headwinds in the port business, such as the trade war and a global economic slowdown. We believe Westports will be able to weather this difficult period with additional services from the Ocean Alliance and strong intra-Asia trade momentum. The shift in business trends should benefit Westports in 12 to 18 months. We raise our discounted cash flow-based (7.5% weighted average cost of capital) TP to RM4.75. We believe its valuations are attractive with the stock trading below mean price-earnings and price-to-book value multiples, while its return on equity remains high at about 26%. We maintain our “buy” call. — AllianceDBS Research, Nov 6