WEDNESDAY, APRIL 5 KUALA LUMPUR- Release of February 2017 External Trade Statistics at 1200 (0400 GMT) KUALA LUMPUR- Deputy Prime Minister Ahmad Zahid Hamidi opens 2017 Malaysia International Halal Showcase at Plenery Hall, Level 1, Kuala Lumpur Convention Centre at 1430 (0630 GMT) KUALA LUMPUR- Opening ceremony of 14th Malaysia International Halal Showcase, Plenary Hall, Level 1, Kuala Lumpur Convention Centre, Kuala Lumpur at 1400 (0600 GMT)
KUALA LUMPUR: Westports Holdings’ 2Q17 core net profit of RM149mil fell 6.8% year-on-year on the back of lower volumes and higher fuel prices, partially offset by a RM11.8mil insurance claim received.
CIMB Equities Research said the net profit was 2Q17 NP was only 2% below its forecast, but above consensus despite the large transshipment volume decline, as gateway volume growth was better than expected.
“We expect 3Q and 4Q17F volumes to be sequentially higher than the 2Q, as the impact from the new shipping alliance structures was fully reflected in the 2Q.
“Furthermore, Westports is confident that FY18F volumes will recover year-on-year, due to gateway volume growth and the extra cargoes from Cosco and Evergreen.
“Hence, we maintain Hold with an unchanged DCF-based target price of RM3.84,” it said.
To recap, CIMB Research said container volumes fell 10.9% year-on-year during 2Q17, as a result of a 17.5% decline in transshipment volumes, partially offset by 7.3% growth in gateway volumes.
As the proportion of gateway volumes rose 5.4% pts year-on-year to 31.8% in 2Q17, the average unit revenue for the container port business rose 4.9% year-on-year to RM160/teu, in our estimate.
“Although the transshipment volume decline of 17.5% year-on-year during 2Q17 was more than our forecast of a 12% fall, the gateway volume growth of 7.3% year-on-year outperformed our forecast for a 4.3% increase.
“The latter mitigated more than one-third of the negative year-on-year impact on profits from the fall in transshipment cargoes. The gateway volume expansion during the 2Q was driven by a 9% year-on-year rise in export volumes, while imports rose 3%,” it pointed out.
Intra-Asia cargoes continued to grow at a healthy rate of 5.2% year-on-year during 2Q17, as half of intra-Asia cargoes are gateway in nature.
Conversely, most of the other trade routes saw double-digit declines, led by Asia-Africa cargoes which fell 65.9%, followed by AsiaEurope cargoes which fell 26.3% year-on-year. These trades are dominated by transshipment volumes.
Consequently, intra-Asia volumes now comprise 56.6% of Westports’ total volumes, up a staggering 8.7% pts year-on-year.
“Westports revised down its volume guidance for FY17F to a year-on-year decline of between 7% and 12%.
“Back on June 1, 2017, Westports publically guided for an annual volume decline of a ‘single-digit percentage’; so clearly, the outlook had been worse. Taking the cue from Westports, we have revised our volume decline assumption from 4.2% year-on-year to 8% for FY17F, with transshipment volumes now expected to fall 12.4% year-on-year, but gateway volumes up 5%,” it said.
CIMB Research said it does not see the need to be worried, since the worst was already felt in 2Q.
CMA CGM has already completed the transfer of its annualised target of 1 million teus to Singapore by 2Q17, while UASC (post-merger with Hapag-Lloyd) also completed the transfer of 0.9m teus of transshipment cargoes to Singapore by June 2017.
As such, the level of transshipment cargoes handled by Westports will most likely increase sequentially in the 3Q, and also into the 4Q. The robust growth of gateway cargoes during 1H17 of 5% year-on-year has also continued into July.
“Westports reported an effective tax rate of 21.3% in 1Q17 and 14.7% in 2Q17, for an average of 18% in 1H17.
“Our FY17F forecast is for an effective tax rate of only 2.1%. We believe this is achievable, as Westports will complete Phase 2 of Container Terminal 8 (CT8) by Jul and Phase 1 of CT9 by December 2017.
“As such, this will allow Westports to offset its investment tax allowance and capital allowances against its full-year taxable income. Hence, the taxes accrued in 1H17 will likely be reversed in 2H17F, in our view,” said CIMB Research.
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