Maybank Investment Bank (Maybank IB) is optimistic of Westports Holdings Bhd’s outlook, driven by sustained growth in intra-Asia trade and increasing foreign direct investments (FDIs) in Malaysia, which will boost its gateway volume expansion.
“The long-awaited expansion of Westports terminal (CT10 to CT17) extends Westports’ growth prospect. With a net gearing of 0.08x at end-FY23, it has substantial debt capacity, supported by a robust free cash flow (FCF) of more than RM800 million per annum.
“An equity call is only anticipated in 2027. Our forecasts have factored in 100% dividend reinvestment take-up for FY26E and FY27E,” it said in its research note today (Feb 6).
The research house said Westports achieved record container throughput volume for the financial year of 2023 (FY23), leading to its management to maintains growth guidance.
The port operator achieved an 8% year-on-year (YoY) increase in container volume growth in FY23, aligning with guidance and slightly above Maybank IB’s 6% rise YoY forecast.
‘For FY24E, it anticipates low single-digit container growth compared to our new projection of a bump of 4% YoY,” it said.
Maybank IB said Westports’ FY23 core net profit (CNP) of RM775 million, driven by lower fuel and finance costs as well as the absence of FY22 Cukai Makmur, met the 99% and 105% of its and consensus forecasts.
“Our FY24 and FY25 CNP are largely unchanged. We tweak our FY24E to FY25E CNP slightly by 1 to 2% post FY23 result based on updated 4% YoY per annum higher container throughput volume projection, which was previously 2%.
“This was partially offset by a lower blended container yield assumption on lower contribution from value-added services (VAS) with the normalization of storage and reefer charges,” it said.
It also maintained its BUY call and raised its discounted cash flow (DCF)-target price (TP) by a slight 2% to RM4.43, with weighted average cost of capital (WACC) of 6.7%, from RM4.35, reflecting its roll-forward to FY24E.
Meanwhile, Maybank IB said CY23 CNP increased by 15% YoY as costs reduced FY23 operational revenue reached RM2.09 billion, which is an higher by 2% YoY in container revenue, despite an +8% YoY increase in throughput volume.
“This was offset by 6% YoY lower blended container yield, attributed to reduced value-added services (VAS) charges.”
It added FY23 container throughput rose 8% YoY, with gateway containers recording 14% increase YoY and transhipment surges 4% YoY.
“Normalized empty container volume represents 27%. Increased gateway demand was fueled by competitive exports and FDIs, while resilient intra-Asia trade and improved laden box volume in 4Q23, which is 10% higher YoY supported transhipment volume.
“In January 2024, the group saw continued robust throughput growth of 9% YoY, partly driven by Chinese New Year demand,” it added.
The research house said the risk factors to its estimates, target price and call are abrupt changes to trading routes or a substantial slowdown in the global economy may lead to lower container throughput and hence earnings for Westports.
“An unexpected delays in tariff hikes and surged in operational costs will also lead to a dampening of future earnings growth,” it added.
