KUCHING: Westports Holdings Bhd’s (Westports) financial year 2017 (FY17) results exceeded expectations but analysts are mixed on their outlook for the port operator in FY18.
The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) pegged a more optimistic view on Westports’ prospects.
It said, “Our more upbeat view hinges on continued strength in Malaysian external trade that is estimated to grow by 9.3 per cent year-on-year (y-o-y) according to our economics team which would bode well for the gateway segment.”
It added, “FY18 is set to be a year of growth in terms of container volume. From the third quarter of FY18 (3QFY18) onwards, container volume is expected to stage a rebound due to a low base, signalling a return to normalcy as the impact of the new alliances fades.
“Management is expecting container volume growth to be within a range of two to three per cent.”
The research arm is slightly more optimistic on Westports’ container volume as it forecast a 5.2 per cent year-on-year (y-o-y) increase in throughput volume in FY18.
Taking into consideration the strength in Malaysia’s external trade, the tariff hike in September 2018, and the increased FY18 tax rate to 24 per cent due to realisation of cash benefits in FY18 as a result of the ITA in FY17, MIDF Research adjusted its FY18 earnings forecasts upwards to RM584.6 million (previously RM554.9 million).
On the other hand, the research arm of Maybank Investment Bank Bhd (Maybank IB Research) gave a less bullish view on Westports.
It lowered its FY18 estimated earnings per share (EPS) by five per cent as it raised its tax rate forecast to 24 per cent (from 19 per cent) as Westports has already fully utilised its investment tax allowance in 4Q17.
“We now project its core net profit to be lower by 20 per cent y-o-y in FY18 as the higher tax rate (20 percentage points y-o-y) would outweigh our volume growth forecast of four per cent and the tariff hike on local containers of 15 per cent in September 2018,” it said.
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said while it guided a low single-digit percentage growth for container volumes in FY18, it expected upcoming 1Q18 numbers to show some y-o-y deterioration as the new shipping alliances were only effective Apr 2017.
“Moving forward, we believe FY17 should serve as a new low base for throughput to organically grow from, premised on continued growth in gateway volumes on the back of our expanding economy, and recovery of transhipment volumes in a post-reshuffling business environment,” it opined.
Aside from that, Kenanga Research believed the Westports 2 project (which consists of CT10 to CT19) would be a longer-term prospect play, with expectations of CT10 to only come on-stream in three to five years.
On Westports’ performance in FY17, the research team said its FY17 core net profits (CNP) of RM651.7 million came above earnings forecasts due to tax incentives from capex investments.
It explained that Westports’ FY17 CNP grew four per cent y-o-y due to the aforementioned tax incentives, resulting in an effective tax rate of just 3.7 per cent versus 15.6 per cent in FY16.
However, it pointed out that on the profit before tax-level, results were 10 per cent poorer y-o-y due to operating revenue decline of five per cent from lower container throughput, coupled with increased fuel costs by 28 per cent.
It also noted that Westports’ total container throughput declined nine per cent y-o-y to nine million TEUs, with transhipment throughput losing 16 per cent. This was affected by restructuring activities among global shipping lines, while offset by gateway throughput growth of 10 per cent.
For the quarter of 4Q17, Kenanga Research said, Westports’ CNP of RM211 million was 28 per cent better y-o-y, similarly due to the aforementioned favourable taxes.
On a sequential basis, it said Westports’ 4Q17 CNP jumped 40 per cent q-o-q due also to the aforementioned tax incentive.
“PBT declined 18 per cent q-o-q from higher other expenses (60 per cent q-o-q), which we suspect could be due to some provisions made for its Bill of Demand received by the Royal Malaysian Customs in December 2017. Operational revenue improved three per cent q-o-q, in tandem with container throughput growth of four per cent q-o-q,” the research team added.
All in, Kenanga Research pegged a ‘market perform’ call on the stock. Maybank IB Research maintained its ‘hold’ recommendation while MIDF Research upgraded its call to ‘buy’ from ‘neutral’.
“Overall, we favour Westports as its incoming capacity coupled with plans to increase automation in the long run would enable the company to compete for transhipment businesses more effectively.”