PETALING JAYA: Westports Holdings Bhd
remains largely insulated from the Middle East conflict, shielded by its strategic focus on intra-Asia trade.
RHB Research in a note to clients said it continues to like the transportation and logistics company for its earnings growth trajectory backed by tariff adjustments, resilient container volume growth supported by stable intra-Asia trade, and defensive nature by providing an appealing 5% yield.
The research house said its direct exposure to the Middle East conflict is minimal, as only 5% of Westports’ container volume is exposed to the region, despite Asia-Europe routes accounting for 16% of overall throughput.
“Management confirmed that all eight services calling from the Middle East remain active. Notably, some liners are diverting cargo at alternative hubs like Westports due to Strait of Hormuz limits.”
However, it noted that the group is strictly refusing boxes with unclear final destinations, keeping yard density at a healthy 70% to 80% level to avoid congestion.
Meanwhile, two new warehouses commencing in April and June will provide an additional 500,000 twenty-foot equivalent units per annum.
RHB Research said rising fuel costs could weigh on Westports’ earnings.
Based on a sensitivity test, every 10% increase in fuel costs could weigh on Westports’ financial year ending Dec 31, 2026 (FY26) earnings by circa 1%, though the duration of the conflict will ultimately dictate the severity of this impact.
“Hence, we believe the current environment presents an appropriate window for the government to establish price mitigation mechanisms to cushion these costs.”
The research house noted that shipping carriers had been gradually returning selected east-west services to Suez Canal transits in recent months, after previously detouring around the Cape of Good Hope since late 2023 due to attacks by Houthi militia.
“These plans are now expected to be shelved, which could make the freight rate more volatile,” it said.
RHB Research said it has maintained a target price of RM6.89 for the stock that implies a target FY27 price to earnings of 18 times with a 2% environmental, social governance (ESG) premium imputed due to its ESG score of 3.1.
A prolonged regional conflict could dampen global demand, leading to slower-than-expected container growth, RHB Research said, adding that while a 1.8% inflation forecast for 2026 was maintained, escalating conflicts may drive crude oil prices higher and potentially fuel inflationary pressure.
