RHB Investment Bank (RHB) prefers Westports Holdings Berhad among the infrastructure players following the shift in optimism on the country’s and region’s trade prospects. As the largest marine port in Malaysia, Westports is poised to benefit from the recovery in trade activities, supported by the growth in country’s E&E and commodities exports.
RHB upgrades (U/G) the stock to BUY from Neutral, with new DCF-derived TP MYR4.52 from MYR4.12, 18% upside and c.5% yield.
1Q24 results preview
RHB, in its Malaysia Company Update note today (Apr 9), said following the remarkable surge in container volume witnessed in Dec 2023, they anticipate that the momentum will persist into 1Q24, with container volume expected to remain within the 2.3-2.8m TEU range.
This is primarily underpinned by a robust recovery in trade activities both domestically and across the intra-Asia region.As such, RHB estimates 1Q24 to see a YoY improvement, pencilling a core net profit within the range of MYR195-200m.
Medium term to be supported by intra-Asia trade growth potential
RHB Economics reaffirms its optimistic stance on Malaysia’s trade prospects for 2024, supported by: i) Brighter global and regional economic landscape; ii) the bolstering economic performance of China; and iii) resurgence in the global technology cycle.
Growth potential in the E&E sector (c.40% Malaysia’s exports) should boost the country’s drive to attract more inward foreign direct investment (FDI).
The Government has instituted a range of initiatives and incentives aimed at stimulating FDI, such as tax incentives, reinvestment allowances, relocation incentives, and regulatory streamlining.
These measures aim to bolster Malaysia’s FDI inflows relative to nominal GDP, which has generally exceeded those of other emerging markets in South-East Asia, underscoring its growth prospects.
RHB believes that Westport will be the primary beneficiary of these developments, particularly given the intra-Asia segment accounts for 65-67% of the group’s throughput volume.
Incoming Westports 2 sufficient to cater to long term demand
Currently operating nine container terminals with an annual capacity of 14m TEUs, this expansion plan is set to double Westports’ annual TEUs to 27m over a projected 20-year period.
The first phase, starting from CT10-13, will commence after the land reclamation process, which is estimated to take about two years.
Based on RHB’s latest channel checks, CT10 & CT11 should be ready to operate by 1H28-2H29.
Earnings revision
As RHB turned more optimistic on the region’s trade prospects, they upgraded Westports to BUY and their FY24F-26F earnings are lifted by 4-4.5% as they raises their FY24F-26F container assumptions by 6-16%.
RHB also upgraded its ESG score to 3.1 from 2.8 – encouraged by its green initiatives and decarbonisation efforts via electrification of terminal operating equipment.
This brings their new TP to MYR4.52, after incorporating a 2% ESG premium. Its current valuation is attractive, trading at -1SD from its historical average P/E of 16.9x, and closely trailing its regional peers of 16.3x.
