The World Container Index (WCI) composite has been steadily increasing since July 2023, driven by the peak shipping season.
Maybank Investment Bank (Maybank IB) cited that last week, it surged by 12% WoW, reaching USD1,761, the highest since May 2023. While it’s 34% lower than the 10Y average of USD2,684, it is 24% higher than the pre-pandemic 2019 rates of USD1,420.
Remaining cautious on supply-demand imbalance
Despite the recent strength in container freight rates, Maybank IB remains cautious on the near-term outlook, as downside risks persist due to the supply – demand imbalance in the container shipping industry, which is not expected to end soon.
Peak season demand is expected to be subdued in 2H23, due to high US inventory levels, which are expected to prolong destocking activities.
Additionally, the market is facing a capacity explosion with a significant increase in the container fleet, putting further pressure on shipping rates.
Bright spot on Westports gateway volume
In the scheme of things, Westports Malaysia defies the subdued global container shipping near-term outlook, revising its 2023 container volume growth guidance up during the 2Q23 results briefing, mainly driven by strong gateway cargoes and market share recovery.
Maybank IB projects its container volume to grow by 6% YoY in 2023 (2022: -3%), compared to its revised internal growth projection of high-single digit (vs. low-single digit previously).
Slower economic growth remains as key headwind
Maybank IB is neutral on the sector while they expect gateway volume strength to support Westports’ near-term container throughput growth.
The bank remains cautious due to slower global economic growth.
Other risks include rising costs, and for Westports in particular, an unfavourable concession agreement for Westports 2.0.
Positive upsides are stronger gateway volumes and an earlier end to destocking.
Maybank IB maintains an unchanged MYR3.68 TP for Westports based on DCF (WACC: 8.7%; LTG: 2%); maintain HOLD.
