Investment Highlights

• We maintain HOLD call on Westports Holdings with a high fair value of RM4.93/share (v. RM4.52/share previously). O fair value is based on a rolled-forward FY25F P/E of 20x, +1S above its 5-year average of 17.8x and include a 3% premiu from a 4-star ESG rating.

• Westports’ 1HFY24 core net profit (CNP) of RM408m (excluding RM0.1mil reversal of impairment on trad receivables) was within our expectation and consensus’.

• Management has declared a first interim dividend of 8 sen/share (ex-date: 9 Aug 2024), amounting to RM303mil. W view 1HFY24 DPS as on track meeting to meet our FY24F DP of 17.8 sen/share.

• Westports’ 1HFY24 CNP rose 8% YoY to RM408mil fro RM378mil mainly due to a 4% increase in revenue, which wa driven by container (+7% YoY), conventional (+8% YoY) an rental (+4% YoY). This was further supported by a 14% declin in net interest expense to RM18mil in 1HFY24.

• YoY, 1HFY24 container throughput grew by 3% to 5.4mil TEU (v. 5.3mil in 1HFY23). The growth was supported by stron gateway volume (+11% YoY) resulting from higher fu container load (FCL) imports.

• YoY, container revenue rose 7% to RM952mil in 1HFY24 fro RM887mil in 1HFY23 due to higher volume and increase revenue from value-added services (storage and reefers) a yard occupancy rate reached 100% in mid-June. Likewis conventional revenue rose by 8% YoY attributed to high break bulk volume i.e. steel products, project cargoe aluminium ingot, steel coils, natural rubber and heavy l cargoes.

• QoQ, 2QFY24 CNP was flat at RM204mil mainly as contain volume increased marginally by 2% to 2.73mil TEUs (v.2.67m TEUs in 1QFY24). This was partly offset by lower contributio from the marine segment (-5% QoQ), attributed to low container vessel calls.

• Moving forward to 2H2024, we believe that port congestio would taper off due to reduced spillover effects from Red Se driven diversions. Signs of easing have been seen with short ship waiting time at major ports like Singapore and China.

• According to Linerlytica, port congestion in Port Klang ease by mid-July as ships diverted to nearby ports like Lae Chabang, Kaohsiung and Cai Mep, which saw increase volumes. In July 2024, Westport's yard occupancy rate was 85%.

• The Shanghai Containerised Freight Index is showing signs of easing as reflected in the 5% decline to US$3,542 per TEU in the week ending 19 July 2024 from US$3,734 per TEU in the first week of July 2024. This marks a continuation of the downward trend that began on 12 July 2024, after 13 weeks of rising rates. The easing of the SCFI is attributed to softer spot rates in the high-volume Shanghai-US West Coast trade lane.

• A re-rating catalyst is a potential tariff hike as the company seeks revisions for both container and conventional segments to maintain competitiveness within the region.

• Key downside risks are:
  
  i) global trade headwinds from Red Sea transit disruptions which cause longer shipping delays.
  
  ii) high operational costs due to unfavourable forex rates and elevated Brent crude oil price environment, and
  
  iii) lower-than-expected increase in tariffs.

• The stock is currently trading at a fairly priced FY25F PE of 18.6x, +0.5 SD above its 5-year average of 17.8x, while offering a decent FY25F dividend yield of 4.7%.

Source: AmInvest Research - 29 Jul 2024