KUALA LUMPUR (Nov 10): Kenanga Research upgraded its call on Westports Holdings Bhd to "outperform" from "market perform", with a higher target price (TP) of RM3.80 from RM3.65 previously, after the group beat market expectations in its financial results for the cumulative nine months ended Sept 30, 2023 (9MFY2023).
In a note on Friday, the research house raised its FY2023 net profit forecast by 6%, and 7% for FY2024, as it expects container volume growth rates to grow 6% in FY2023 and 4% in FY2024 (from 1% and 3% previously).
Notably, Westports' revenue rose 3% year-on-year for 9MFY2023, on stronger container volume, which was partially offset by a lower average revenue per twenty-foot equivalent unit (TEU), on lower storage income as port congestion eased.
Core net profit surged by 23%, due to lower diesel fuel cost, lower finance cost, and the normalisation of the effective tax rate to 22.8% in the absence of the prosperity tax.
Quarter-on-quarter, Westports posted a slight improvement in container volume, partly offset by lower average revenue per TEU (-2%). Core net profit was similarly dragged by higher diesel fuel cost and finance cost.
Based on guidance from the results briefing, FY2023 container volume is expected to grow by 5% to 10% (versus 0% to 5% estimated previously) on robust intra-Asia trade, driven by an increase in direct investment from China, such as container volume related to recycling paper mills and solar panel manufacturers.
In the latest quarter, the empty container box level normalised (at 27% of total containers, versus 29% three months ago), as the empty containers had mostly been shipped out to China.
“The intra-Asia container volume rose 5% quarter-on-quarter, which indicated that some of the boxes had been put back into circulation,” it said.
Kenanga noted that port congestion had ended, as reflected in the normalisation of its container yard utilisation to the optimal level of about 80%.
“On one hand, Westports sees lower storage income. On the other hand, it is regaining customers lost to a neighbouring port at the height of port congestion, translating into higher container volume. Also, with its container yard operating at an optimal level, there are efficiency gains,” added Kenanga.
The research firm expects the Westports 2 expansion project, which is still pending a concession agreement, to be finalised by December.
“It indicated that capital raising for the project will start one year after the project commences.
“Recall that the RM10 billion Westports 2 (CT10-17) will almost double its capacity to 27 million TEUs, from 14 million TEUs currently, over 20 years,” it added.
Westports shares had gained 11 sen or 3.25% to RM3.49 at the time of writing on Friday, translating into a market capitalisation of RM11.90 billion.