Saturday, May 25

Westports FY18 in line with expectations, analysts ups forecast

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KUCHING: Westports Holdings Bhd’s (Westports) financial year 2018 (FY18) results were within expectations, leading analysts to raise their earnings forecast for the port operator.

MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) in a report, pointed out that Westports’ fourth quarter of FY18 (4QFY18) was the best performing quarter in FY18 with normalised earnings of RM151.3 million, representing an increase of 8.6 per cent quarter-on-quarter (q-o-q), bringing its cumulative normalised FY18 earnings to RM534.5 million (excluding one-off items), in line with expectations.

It noted that the 17.4 per cent year-on-year (y-o-y) decline in FY18 normalised earnings was mainly attributable to the higher effective tax rate in absence of the Investment Tax Allowance (ITA), the rise in fuel costs (up 26 per cent y-o-y), and higher finance costs (+19.6 per cent y-o-y).

Excluding the impact of ITA in FY17, it noted that Westports would have recorded a four per cent per cent y-o-y increase in FY18 normalised earnings.

“FY19 is set to be a year of organic growth in terms of container volume as the effects from the recalibration of shipping alliances is overdone,” the research team opined.

It noted that in 2018, Asean contributed 27.1 per cent of total Malaysian trade, higher than that of US and China.

“Therefore, we are maintaining our 9.9 million TEUs target for FY19, reflecting a 3.4 per cent y-o-y growth which is in-line with the management’s guidance of three to eight per cent.

“Note that our FY19 container volume growth estimates commensurate with MIDF Research’s economics team estimates of a 3.6 per cent y-o-y total exports growth in FY19,” it added.

On the feasibility studies for the CT10 to CT19 expansion, MIDF Research noted that Westports is expected to complete this analysis by end of 1QFY19.

“Following that, Westports will start negotiations with the Government of Malaysia (GoM) for the concession agreement.

“We are confident that it will be granted given that the expansion will be fully funded by Westports. Assuming that the concession with the GoM is concluded by the end of FY19, we expect the land reclamation works to begin in FY20 after the second land acquisition is made,” it added.

All in, MIDF Research said, for its FY19 forecast earnings, it made a slight adjustment upwards by less than one per cent to RM595 million.

“We also introduce our FY20F earnings forecasts of RM669.9 million,” it added.

Meanwhile, Kenanga Investment Bank Bhd’s research team (Kenanga Research) upgraded Westports’ FY19 estimated core net profit by 2.4 per cent and introduce FY20E earnings.

“Post results, we upgraded our FY19E CNP slightly by 2.4 per cent to RM593.5 million after lowering our operating expense assumption while also introducing FY20E CNP of RM634.6 million.

“Our FY19 to FY20E earnings is based on throughput growth assumptions of five and five per cent (respectively), in-line with management’s FY19 guidance while we have also accounted for the March 2019 implementation date of the container tariff hike,” it added.

On a similar stance, Affin Hwang Investment Bank Bhd’s research arm (Affin Hwang) had also upgraded its forecast on Westports.

“We have raised our 2019-20 EPS forecasts by four per cent after incorporating the 2018 operational and financial statements, and higher 2019 to 2020E gateway throughput assumptions, tracking the strong 2018 performance,” it said.

The research house maintained its ‘hold’ call on the stock while Kenanga Research maintained its ‘market perform’ rating.

MIDF Research upgraded its ratings on Westports to ‘buy’ from ‘neutral’.

It explained: “We favour Westports due to lower transhipment tariffs amongst its peers such as Port of Tanjung Pelepas and Port of Singapore even after taking into account of the second phase of tariff hike in March 2019, and the extension of the Ocean Alliance to 10 years (initially five years) until 2027 will deter effects from the reshuffling of alliances profoundly seen in FY17.

“On a longer term horizon, Westport’s CT10-CT19 expansion plan is expected to increase capacity by roughly 50 per cent to approximately 30 million TEUs per annum by 2040.

“This would allow Westports’ to compete more effectively for transhipment volumes against Ports of Singapore which has plans to raise capacity from to 65m TEU by 2040.”