AllianceDBS Research expects stronger 4Q earnings from Westports

KUALA LUMPUR: AllianceDBS Research expects stronger Westports Holdings to record stronger earnings in 4Q FY19 as it is typically a seasonally strong quarter.

It said on Wednesday Westports posted 3Q19 net profit of RM159.2m (+11.9% y-o-y) from higher transhipment volume (+17.1% y-o-y).

The 9MFY19 earnings formed 72%/73% of AllianceDBS/consensus FY19F estimates.

“Westports has guided for double digit total volume growth for FY19. This will be driven by both transhipment and gateway volumes.

“We have bumped up our earnings by 4% for FY19F-21F as we increase our total container throughput growth of 11%/4%/4% to 15%/4%/4% respectively for FY19F/20F/21F. This is to be more in line with management’s guidance of 12%-15% for FY19F, ” it said.

Westports has a land bank of 100 acres which it has earmarked for logistics companies.

AllianceDBS Research said the company secured five companies under the polymerise sector with 20 acres each. Rental income will be minimal but more material gain will come from potential volumes from these warehouses.

The proposed expansion of container terminals CT10 – CT17 is pending negotiations and finalisation of concession terms after getting the approval-in-principle.

“This is expected to materialise by 2QFY20 as the Port Klang authority has just completed performing some simulation studies on the expansion. Westports has finalised the port extension layout and appointed financial advisers to facilitate next phases of work, ” it said.

AllianceDBS Research said once the company has obtained the concession agreement, it would be able to start work on the reclamation which would take about one year.

“The capex for the reclamation works is about c.RM1bil. Hence, we project that if reclamation starts by 2HFY20, CT10 should commence operations in FY2023. This is also subject to any change in operating environment, as higher demand may expedite the commencement.

“There are still headwinds in the port business, such as the trade war and global economic slowdown. Nonetheless, we believe Westports will be able to weather through this difficult period with its additional services from Ocean Alliance as well as strong momentum from its intra-Asia trade. The shift in business trends should benefit WPRTS in 12-18 months.

“Our DCF based (7.5% WACC) TP increases to RM4.75 post earnings upgrade. We believe valuations are attractive with the stock currently trading below mean price-to-earnings (PE) and price/book value (P/BV) multiples, while return on equity (ROE) remains high at c.26%. Maintain Buy, ” it said.

Source: TheStar