KUALA LUMPUR: Westports Holdings Bhd
could face earnings headwinds over the short-term as a result of various supply chain disruptions and inflationary pressures.
In light of this, UOB Kay Hian Research in a report yesterday trimmed its earnings forecast for Westports for 2022 (by 4%), 2023 (4%) and 2024 (2%).
“Our forecast, now 15% below consensus, assumes there will be a 4% year-on-year volume contraction in 2022, after factoring in various supply chain disruptions and inflationary impact, and results in a downward revision of 2022 and 2023 20-foot equivalent unit (TEU) figures.”
The research house cut the port operator’s value-added service income, in tandem with lower utilisation of 70% for 2022 and higher fuel costs.
“We continue to assume a high tax rate of 37% for 2022, until there are further updates on the actual one-off Prosperity Tax treatment,” it added, noting that Westports’ second quarter 2022 results are due to be released in July.
UOB Kay Hian Research said there are signs that inflationary pressures in various countries had resulted in lower-than-expected demand, including transshipment demand related to Malaysia.
“This might cause disruptions (delays of consignees) or recalibration to other profitable trade routes, as the cost of goods for certain sectors surge.”
UOB Kay Hian Research noted that China’s lockdowns had disrupted global supply schedules, suggesting cargo backlogs are building as China’s zero-Covid strategy limits exports to Europe and the United States.
“Containership rates for North Asia routes saw a 20% to 30% correction post the Chinese New Year demand slump, as well as a further 20% to 30% correction due to China’s lockdowns. However, reemerging lockdowns in Shenzhen (the assembly line of China’s supply chain) also add on to the uncertainty.”
Citing reports, UOB Kay Hian Research said 51% of freight forwarders and shippers expect “greater chaos” in the peak container season of July and August, as compared to the same period in 2021.
The research house added: “While Shanghai’s reopening should allow east-bound container trades to recommence, China’s export backlog will clash with peak season orders, whereby US and European Union ports are facing heavy congestion.
“Technically, Westports is better equipped to handle a congestion surge, compared with 2021’s case.”
UOB Kay Hian Research noted Malaysian ports are facing competition from Singapore.
“Port Klang and Port of Tanjung Pelepas in Iskandar Puteri, Johor Baru, lost some market share to Port of Singapore Authority (PSA) in the first quarter of 2022.”
The research house said PSA is developing additional capacities, potentially doubling its existing volume of 37 million TEUs to 65 million TEUs by 2040.
“During the congestion periods in 2020 and 2021, PSA reopened certain terminals and mothballed cranes to ease bottlenecks.
“Two new berths of the expansion have been in operation since the end of 2021.”
UOB Kay Hian Research said this may explain PSA’s narrower volume declines of 3% in the first quarter of 2022 and between 2% and 3% for the April and May, which are periods of lower transshipment flows induced by China’s lockdown.
