• Still NEUTRAL, with new DCF-derived MYR4.56 TP from MYR4.52, 6% upside, c.5% yield. Westports’ 9M24 results beat ours and consensus’ expectations. Regional congestion has now eased and volumes are expected to normalise. However, geopolitical risks remain with the recent US election outcome. Regardless, we see limited upside potential for this counter as it remains fairly valued, trading at its historical mean.

• Exceeded expectations. Westports posted a 3Q24 core net profit of MYR228m (+11.8% QoQ, +16.5% YoY), bringing 9M24 earnings to MYR636m (+10.7% YoY), above ours and Street’s estimates at 77% of fullyear forecasts. The deviations were mainly due to lower-than-expected operating expenses and higher-than-expected rental revenue. Segmentwise, 3Q24 container revenue rose 6.6% YoY to MYR488m despite a 2% decline in volumes, thanks to increased value-added services or VAS contributions. Consequently, revenue/TEU rose 9% YoY. On the other hand, conventional revenue grew 30% – in line with a 22% increase in volume due to greater contributions from the break bulk and dry bulk segments.

• 3Q24 throughput analysis. Westports managed a total of 2.7m TEUs (-1% QoQ; -2% YoY) in 3Q24, with transhipment volume falling 10% YoY due to port congestion offset by a 9% increase in gateway volumes. As a result, container volume handled in 9M24 was 8.11m TEUs, with transhipment: gateway split of 55:45. This slightly fell short of our expectations as it made up 70% of our full-year FY24 container assumptions. Geographically, IntraAsia trade remains the biggest contributor (c.66% of total container volumes) despite recording a slight drop of 2% in 3Q24. However, this was partly offset by recovery in Asia-Europe routes which saw an 18% YoY rise.

• Outlook. As port congestion has now eased with yard occupancy normalising to c.70% level (from 91% in 2Q24), we anticipate a pick-up in the container handling revenue in the coming quarter, offset by lower VAS contributions due to lower storage revenue. However, with the recent development in US politics, exporters have turned more cautious, with some of the Chinese companies in Malaysia holding back its capacity expansion plan in fear of targeted tariffs imposed by the US. Regardless, management is still maintaining its low-single digit volume growth guidance.

• Keep NEUTRAL. We revise up our FY24/25/26 earnings forecasts by 1%/3%/3% to include lower depreciation under the new concession agreement, as well as higher rental revenue and lower container volumes in FY24F.Our TP is revised to MYR4.56 post DCF upkeep adjustment with a 2% ESG premium, based on its ESG score of 3.1. While our economics team maintains its positive outlook for Malaysia’s trade in 2024, we keep our NEUTRAL call as Westports is fairly valued with an implied FY24 P/E of 16.4x – in line with its historical average of 16.8x. Key risks: Lower-than-expected TEU volume and higher-than-expected operating costs.

Source: RHB Securities Research - 11 Nov 2024