KUALA LUMPUR: CIMB Equities Research sees a bright outlook for Westports over the long term as the post owner and operator has secured government approval to build another 10 container terminals that can double its handling capacity to 30 million twenty-foot-equivalent unit (TEUs) per annum.
It said on Friday that Westports’ FY17 core net profit of RM671mil was 2% higher than forecast due to lower-than-expected operating costs.
After experiencing a 9% decline in container volumes in FY17 as a result of container shipping industry realignments, Westports can look towards a normalised FY18F.
“We maintain Add, with a higher discounted cashflow-based target price of RM4.23 (up from RM4.14),” it said. The last traded price was RM3.54.
Highlights of FY17 results
Westports’ FY17 pretax profits fell 10% on-year, under the shadow of a 16% drop in its transhipment (t/s) volumes, due to CMA CGM’s and UASC’s transfer of some or all of their t/s cargoes to Singapore.
The negative earnings impact was partially offset by a robust 10% rise in gateway cargoes, which carried higher tariffs and higher margins.
At the core net profit line, Westports saw its FY17 earnings rise 6% on-year, as it capitalised on its investment tax allowances to reduce its tax burden significantly.
The investment tax allowances (ITA) were booked in 4Q17, which reported a positive tax of RM65.5mil, largely offsetting the tax expense booked in the first nine months.
As a result, 4Q17’s core net profit jumped 46% on-year. The effective tax rate should normalise to c.24% in FY18F, which explains the forecast 20% on-year drop in core EPS.
For FY17, Westports declared a final dividend of 7.95 sen/share, taking the full-year DPS to 14.32 sen, based on its payout policy of 75%, and representing a healthy dividend yield of 4%.
“We expect Westports’ overall container volume to grow 2.2% on-year in FY18F, with t/s cargoes rising 1% and gateway cargoes rising 5%.
“The pace of gateway cargo volume growth should slow this year because of the higher base effect, and because the upward momentum of the global Purchasing Manager’s Index is slowing,” it said.
Westports guided for 1Q18F volumes to fall on-year, as the OCEAN alliance service realignments only took effect on 1 April 2017, for 2Q18F to see flat on-year volumes, and for growth to resume in 2H18F.
Phase 1 of CT 9 was completed in Dec 2017, and equipped with two quay cranes and 13 units of rubber-tyred gantry cranes.
This lifted Westports’ container handling capacity to 14m teus/year, with utilisation of 63% in 4Q17, down from 85% in 4Q16.
As such, Westports is planning to spend only RM100mil in expansion capex in FY18F, vs. RM779m in FY17.
“CT9 can accommodate up to 14 quay cranes, but additional quay cranes will only be ordered once utilisation rises above 75%. The maximum capacity of CT1-9 (codenamed ‘Westports 1’) once fully developed will be 15.5m teus/year, but last year, Westports secured the right from the government to develop CT10-19 (‘Westports 2’) and raise capacity to 30m teus/year.
“Westports is currently performing environmental impact studies and ironing out the terms of the new concession, as well as working out the land acquisition.
“At the very earliest, CT10 can be theoretically commissioned in FY21F, but based on our modest annual volume growth of 5% p.a., we expect CT10 to be needed only after FY23F when utilisation is expected to exceed 75%.
“We have not yet incorporated the value of future CT10-19 developments into our target price, which we expect to be positive given the strategic importance of Westports to the Klang Valley region,” it said.
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