KUALA LUMPUR (Oct 16): Westport Holdings Bhd's (KL:WPRTS) earnings are likely to beat consensus in the third quarter, underpinned by stronger throughput and value-added services (VAS), Maybank Investment Bank said in a note on Friday. 

The house said the first six months' core earnings came in at RM682 million, accounting for 52%/54% of its own and consensus for financial year ending Dec 31, 2026 (FY2026) estimates respectively, leaving room for potential earnings upgrades for the second half.

Westports 3QFY2026 results are scheduled to be released on Oct 21, 2026.

Maybank Invest said container volume growth is expected to strengthen half-on-half in 2HFY2026, despite ongoing geopolitical tensions driven by the normalisation of operations following 1QFY2026 congestion-related disruptions and seasonally stronger demand ahead of the year-end shopping season. 

"Despite ongoing geopolitical tensions, container trade demand remains resilient, with Westports’ July throughput growth at about 8% year-on-year. Based on our channel checks, throughput remained strong in August and early September before moderating," said MaybankInvest.

The house noted that Westport's yard utilisation reached 90% in 3QFY2026, versus 75%-80% in 1HFY2026, but remains manageable with no material congestion despite severe congestion in selected Far East and Northeast Asian ports. 

High utilisation should continue to support VAS and container yields, it added.

On costs, fuel remains a key variable, but diesel prices have yet to exceed the 2QFY2026 peak. 

Maybank Invest therefore expects fuel costs to remain broadly flattish quarter-on-quarter, supporting a stronger 2HFY2026 earnings contribution.

Meanwhile, Maybank Invest said the earnings consensus has yet to fully price in the earnings uplift from tariff hikes, particularly in FY2027.

"The additional 5% tariff hike in January 2027, alongside the gradual pass-through of transhipment tariff increases through customer contract renewals, should sustain container yield growth. 

"We expect these benefits to more than offset potential manpower cost increases, given Westports’ track record of maintaining wages above the minimum wage," said the house.

Historically, the market has reacted positively during tariff hikes and capacity expansion cycles. 

Maybank Invest maintains its FY2026 volume growth forecast of growth of 2% y-o-y, vs a 1% decline in 1HFY2026.

In the previous cycle (between 2015-2019), Westports' forward price-earnings traded consistently above its 10-year mean, reflecting improved earnings visibility and stronger long-term growth prospects. 

Valuations only compressed sharply below mean post-pandemic (between 2021-2023), when the market priced in elevated risk premiums amid unprecedented supply chain disruptions. 

This was followed by a series of global shocks, including the Russia-Ukraine tensions (2022), escalation of Red Sea crisis (2023-2024), and US-China trade conflict (2024-2025), which continued to weigh on sentiment towards the sector. Valuations gradually recovered following the concession extension secured in end-2023.

While the transportation sector typically carries higher exposure to trade related risks, container trade has historically proven resilient. This resilience underpins the defensive characteristics of port operators, further supported by Westports' strategic positioning within the fast growing intra-Asia trade corridor.

Beyond FY2027, Maybank Invest expects some earnings dilution, but the balance sheet remains strong. 

It forecasts flattish y-o-y earnings growth in FY2028, reflecting higher variable costs, particularly labour and depreciation (which nearly doubles based on its estimates), as CT10 commences operations. 

Assuming costs ramp up ahead of earnings contribution, this could lead to margin compression vs FY2027, given that tariff hikes are front loaded rather than phased in alongside capacity expansion as in the previous cycle. 

"That said, its forecasts remain conservative this far ahead of CT10's operational ramp-up," the house said.

Beyond earnings, Westports' balance sheet remains robust, with net gearing below 0.1x despite ongoing expansion, partly supported by its dividend reinvestment plan (DRP). 

This provides financial flexibility to pursue value accretive inorganic growth opportunities, particularly brownfield port projects. Management has indicated that, absent such opportunities, it would conclude the DRP earlier, prioritising shareholder returns. 

"This reinforces the 'buy' thesis — while earnings may be temporarily diluted during the expansion phase, Westports' strong balance sheet should help sustain shareholder returns,"

Key risks ahead include a demand slowdown amid stagflation, despite historical trends indicating increasing resilience in global container trade demand, particularly intra-Asia. Any ceasefire or de-escalation of the conflict will present additional upside to the investment thesis for Westports, it added.