Westports to gain from reopening of economies

Volume growth projected at 5% for this year

PETALING JAYA: Westports Holdings Bhd is set to benefit from the opening of economies this year, in line with the projected volume growth of 5% for 2021.

UOB Kay Hian is maintaining its “‘buy” call on the stock with a target price of RM4.90.

“We keep our assumptions unchanged despite the high-yielding gateway volumes may again surpass our 2020 expectations.

“Our earnings forecast implies that fourth quarter 2020 earnings may decline by up to 18% quarter-on-quarter to conservatively factor in uncertainties of operating expenditure (opex) due to the unprecedented congestion.

“We also retain our volume assumption growth of 5% for 2021, which is already above the Port Klang Authority’s (PKA) target growth of 2.3% for the whole of Port Klang.

“This is because we assume Westports should continue to benefit from the reopening of economies.

“However, we think part of the benefits have been priced in from the temporary pent-up demand that Westports enjoyed in the second and third quarters of 2020.”

UOB Kay Hian, however, said the port operator could be in for milder-than-expected fourth quarter 2020 earnings.

“On Nov 20,2020, PKA announced a growing Covid-19 cluster in Port Klang and had recorded 235 cases since Nov 10,2020.

“PKA also revealed that at that time, Westports had tested its entire 6,000 workforce which revealed six positive cases with more than 90 close contacts isolated.

“Despite the strong container demand as revealed in Port Klang’s statistics, Westports’ fourth quarter earnings may be affected by the above issues as they could lead to: higher operating expenditure (opex), as PKA has instructed all stakeholders to work 24 hours for several weeks to clear the container backlogs.”

The research house added that Westports’ port utilisation might have been far above optimal levels, especially given that some of its cranes were still not back to operational mode after an incident in 2019.

“Typically, costs may spike when a port’s capacity is overstrained. Also, additional opex for Covid-19 quarantine procedures may not be reimbursable. Lastly, some of the container volumes and value-added services may not be recognised in the fourth quarter of 2020.

“The task force is working hard to clear the ongoing congestions since Jan 21, so we do not expect any of the above negative factors to persist.”

UOB Kay Hian noted that since its “buy” call upgrade in September 2019, the company’s share price had performed well and recovered strongly since early 2020, as it factored Wesports’ volume earnings outperformance since the second quarter of 2020 despite the Covid-19 situation.

“Although share price is close to our current target price, we are maintaining our buy call in anticipation of longer-term catalysts, such as the reopening of economies and the Westports 2 concession.

“Nevertheless, there is a possibility of near-term weakness if fourth quarter 2020 earnings appear weaker than expected. In this case, we advise investors to accumulate on weakness.”

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3
Join our Telegram channel to get our Evening Alerts and breaking news highlights

Next In Business News

Stocks steady as markets calm after Evergrande-led slide
Oil edges up, as investors worry about global demand
Tanco bags RM172.66mil land reclamation job in Melaka
Sapura Energy CFO Reza leaves, Chew to take over�
Southern Steel registers RM47.9mil net profit in FY21
BDB-MBI Kedah JV to develop Langkawi Premium Outlets
Astro posts lower Q2 net profit due to elevated content cost�
Southern Acids Q1 net profit climbs on higher commodity prices�
Bursa Malaysia ends higher after volatile trading
Public Bank clinches record Best Bank in Malaysia award for 15 years

Stories You'll Enjoy