KUALA LUMPUR: Westports Holdings’ full-year FY18 core net profit of RM541mil was in line with CIMB Equities Research’s forecast and 3% above Bloomberg consensus.
“FY18 container volume growth of 5.6% on-year exceeded our forecast of 4.5%, staff and fuel costs were also higher than expected,” it said on Thursday.
CIMB Research maintained its Add with a slightly higher discounted cashflow based target price of RM4.06, with the upcoming 13% tariff hike from March 1, 2019 as the key re-rating catalysts.
To recap, it said Westports’ 4Q18 core net profit of RM154mil was 35% lower on-year due to the higher effective tax rate following the expiration of the Investment Tax Allowance in 2017, which also caused FY18 core net profit to fall 20% on-year.
However, the core operations were robust, with 4Q18 and FY18 pretax profit up 33% and 4% on-year, respectively, because of strong volume growth of 16.2% and 5.6%.
Westports’ pretax earnings were lower on-year during 1H18, because of the loss of transhipment volumes to Singapore from 2Q17 onwards, but pretax earnings were higher on-year in 2H18 on the back of a recovery in transhipment growth and double-digit percentage growth in gateway volumes since 3Q17.
CIMB Research pointed out the 17.6% growth in gateway throughput last year was on account of higher exports due to the weaker ringgit, rise in plastic polymers and waste product imports due to the US-China trade war, and the return of shipping liners which were lost to Northport in FY16 due to congestion at Westports at that time (which was no longer a factor in FY18).
While transhipment volumes were flat on-year in FY18, there had been a strong 15% on-year recovery during 2H18 in contrast to the 13% on-year drop during 1H18, as Westports saw a rush to export ahead of the US tariffs on Chinese goods, the entry of new intra-Asia liner services, as well as a spike in Asia-Europe growth.
“Westports expects volume growth to continue into FY19F, at a modest pace of 3-8% on-year; we have pencilled in 4.3% growth as we expect gateway growth to moderate, but its transhipment growth to pick-up from a low base,” it said.
The research house also pointed out that design studies for the Westports 2 project have been completed. This will be followed by technical discussions with the Port Klang Authority and the Ministry of Transport.
“We expect this to be completed in 1Q19F, following which the costing exercise can be finalised and the negotiations of the concession terms with the Ministry of Finance can begin. Land reclamation is expected to commence in FY20F, after the concession agreement is signed.
“Westports is interested to secure tax benefits, and a commitment by the government to future tariff reviews, at the very minimum, in order to make Westports 2 a viable investment.
“We believe that Westports may need to spend RM1bil to RM1.5bil for the first of three phases of land reclamation.
“Given the size of the initial capex, Westports is exploring raising cash via 1) introducing a dividend reinvestment plan, 2) raising new borrowings, and 3) potentially executing a share placement or roping in strategic equity investors at the terminal level. Westports does not favour a rights issue,” it said.
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