Westports Holdings Berhad has raised its guidance for FY23F container volume growth range to 5% to 10% from 0% to 5% previously, and yielded a better 9MFY23 results.
Kenanga Research, in its Results Note today (Nov 10) said however, Westports maintained the volume growth range at a single digit for FY24F.
“The robust intra-Asia trade (FY23F) is driven by the increase in direct investment from China such as container volume related to recycling paper mills, and solar panel manufacturer.
“(Still, FY24F numbers at a single digit) as in the event of a global recession, it holds the view that (growth) will be brief and shallow,” it said.
Kenanga raises its FY23F and 24F net profit forecasts by 6% and 7% respectively, as it lift our FY23F and 24F container volume growth rates to 6% and 4% respectively from 1% and 3% previously.
Consequentially, it upgrades its call to OUTPERFORM from MARKET PERFORM, and increases its DCF-derived TP by 4% to RM3.80 from RM3.65, based on a discount rate equivalent to its WACC of 6.1% and a terminal growth rate of 2%, and no adjustment to our TP based on 3-star ESG rating.
Westports’ 9MFY23 results beat expectations on better-than-expected container volume growth, coming in at 81% and 80% of Kenanga’s
full-year forecast and the full-year consensus estimate respectively.
“Its core net profit surged by 23% due to lower unsubsidised diesel fuel cost, lower finance costs (-21%) and the normalisation of its effective tax rate to 22.8% (9MFY22: 32.9%) in the absence of the prosperity tax,” it said.
Kenanga noted that for the quarter, empty container boxes level normalised at 27% of total containers compared to 29% three months ago as the empty containers had mostly been shipped out to China.
“The intra-Asia container volume rose 5% QoQ which indicated that some of the boxes had been put back into the circulation,” it said.
The research house added that Westports is also helped by the lack of port congestion, as reflected in the normalisation of its container yard utilisation to the optimal level of about 80%.
“On one hand, Westports sees lower storage income. On the other hand, it is regaining customers lost to a neighbouring port at the height of port congestion, translating to a higher container volume. Also, with its container yard operating at an optimal level, there are efficiency gains.”
Kenanga also noted that Westports 2 expansion project is still pending concession agreement which is expected to be finalised by December 2023.
“It indicated that the capital raising for the project will start one year after the project commence. (It was reported that) the RM10 billion Westports 2 (CT10-17) will almost double its capacity to 27 million TEUs from 14m TEUs currently over 20 years.
“We continue to like Wesports for its resilient earnings, its long-term growth prospect and its price competitiveness. Value has emerged after the recent weakness in its share price,” it added.
Risks to Kenanga call include a significant slowdown in the global economy, dampening the global containerised trade traffic, (ii) rising operating costs and its expansion plans fail to materialise.
