Westports Q4 earnings above expectations, says CIMB Research

Activity fell in Malaysia and Taiwan, a sign the U.S.-China trade conflict's impact on the rest of Asia was broadening.

KUALA LUMPUR:  Westports delivered 4Q16 core net profit that was 13% above CIMB Equities Research’s expectations, beating its forecast by 3%, as Q4 container volumes outperformed by 3%.

It said on Monday that consequently, Westports delivered its highest-ever quarterly profit, and its strongest full-year result in history, with container volumes up a healthy 9.7% on-year in FY16.

“Despite uncertainties over alliance changes starting in April 2017, Westports should benefit from expected higher ad-hoc traffic in 2Q17F. We pencilled in 5.5% growth.

“Maintain Hold, with 1-3% higher EPS forecasts for FY17-18F and DCF-based target price of RM4.09 due to the stronger Q4,” it said.

To recap, CIMB Research said for FY16, Westports delivered record-high core net profit of RM632mil, up 24% on-year.

Container volumes rose 9.7%, while per-box container revenue rose 6% as gateway tariffs were hiked 15% in November 2015. These factors helped FY16 earnings before interest and tax (EBIT) rise 13%.

Meanwhile, the effective tax rate declined 6.7 percentage points to just 15.6%, as it secured the investment tax allowance on its capex for 2016-17F.

The research house said in 4Q, Westports enjoyed a 9% on-year lift in container volumes, with transhipment (t/s) cargoes sustaining a strong growth rate of above 9%. 

Gateway cargoes surprised with stronger-than-expected growth of 8.2% on-year, after remaining flat in 9M16, probably due to the earlier Chinese New Year in late-January 2017, but also because of a surge in trade growth to Europe, which more than offset the large decline in African boxes.

As for the on-year drop in boxes handled for the Asia-African trade, amounting to 60,000 TEUs in 4Q (annualised 240,000 TEUs), was due to CMA CGM moving the t/s hub for some of its Asia-West Africa services to the Port of Singapore, in order to partially fulfill its commitment to PSA in return for the opportunity to acquire NOL/APL.

“After the formation of the OCEAN alliance in Apr 2017, CMA CGM has said that it may move a net 1m annual t/s boxes from Westports to Singapore, suggesting an additional decline of 760,000 TEUs per annum on top of what we observed in 4Q16. 

“Westports hopes to make up the difference from more intra-Asia cargoes from Hapag-Lloyd and Cosco, as well as more long-haul t/s cargoes from Evergreen and OOCL.

“The merged Cosco and CSCL has increased the volume of intra-Asia boxes handled at Westports post-merger in 2016, so Westports’ hopes of other carriers making up for the loss of CMA CGM’s traffic is not unwarranted. 

“We believe the remaining carriers of the OCEAN alliance will retain most of their long-haul services at Westports, as Westports is likely to be the cheapest t/s port in ASEAN and PTP is suffering from operational reliability issues.

“THE alliance launched a regional tender for ASEAN t/s ports late last year; the results of which are still unknown. There is a risk that Westports may lose up to one million TEUs of UASC boxes should Hapag-Lloyd decide to move handling to Singapore. 

“However, we believe other THE alliance services may come in to compensate, as t/s rates are competitive.

“We think Westports will easily deliver 5.5% volume growth in FY17F, especially with the onset of ad-hoc movements in 2Q17F when the OCEAN and THE alliances take effect,” it said.
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