Friday 29 Mar 2024
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KUALA LUMPUR (July 27): AmInvestment Bank Bhd has upgraded Westports Holdings Bhd to a "buy" with a 17% higher fair value of RM4.45 (from RM3.81) and said it has raised Westports' FY20-22F net profit forecasts by 10%, 7% and 2% respectively as it believes the worst may be over for seaport operators as economies, businesses and borders reopen, translating to a recovery in global trade and hence improvement in seaports’ throughput.

In a note today, AmInvestment said Westports’ 1HFY20 core net profit of RM310.2 million beat expectations, coming in at 55% of both house and consensus full-year forecasts.

“We believe the variance against our forecast came largely from a lower-than-expected contraction in its container throughput volume in 2Q.

“We now therefore assume in our forecasts a smaller contraction in its FY20F container throughput of 9% (versus 15% previously), but smaller growth in FY21F of 7% (versus 10% previously) due to the high base effect," it said.

The research house said for 1HFY20, Westports container throughput volume declined by 9% year-on-year (y-o-y).

It explained a 14% y-o-y contraction in transshipment (as the pandemic hit global trade) was cushioned by a 2% y-o-y increase in gateway throughput (driven largely by the thriving glove manufacturing and recycled paper processing activities locally).

Typically, transshipment contributes to two-thirds of Westports’ total throughput with the balance one-third coming from gateway cargoes.

“Despite the contraction in container throughput volume, its 1HFY20 core net profit inched up 1.3% driven largely by a six-month impact of an effective 13% hike in container tariff (from March 1, 2019) versus only a four-month impact in 1HFY19; a slight change in product mix with an increase in high-margin gateway cargoes at the expense low-margin transshipment cargoes and higher incomes from value-added services, particularly reefer services.”

The research house noted that for the Westports 2.0 expansion plan comprising eight new terminals, CT10 to CT17, which will double its container handling capacity from 14 million twenty-foot equivalent units (TEUs) to 28 million TEUs, the group has obtained shareholders’ approval to acquire the second piece of land (marina land), measuring 362 acres for RM394 million cash.

It is now working on the land use conversion and the green light from the Ministry of Economic Affairs for its expansion plans.

Meanwhile, its negotiation with the government on the concession terms is still ongoing and Westports reiterates that it hopes to close the negotiation by the end of this year.

Looking beyond the pandemic, AmInvestment’s 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.

“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 chartered a long-term expansion plan to capitalise on these.”

At 9.24am, Westports gained 1 sen or 2.74% to RM3.75, with a market capitalisation of RM12.45 billion. The stock saw some 30,100 shares traded.

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