Monday, 13 July 2020 | 20:19
SPONSORS
View by:

Strong 3Q container volumes to help port operators

Thursday, 07 November 2019 | 16:00

Port operators like Westports Holdings Bhd and MMC Corp Bhd are forecast to register a strong performance for the third quarter (3Q), with higher earnings on quarter- on-quarter and year-on-year (YoY) despite the slowdown in the global economy and stiff competition in the container port sector.

BIMB Securities Sdn Bhd, in a sector update yesterday, stated that the port operators’ robust performance will be derived on the back of strong intra-Asia trade lanes which are expected to increase the transshipment throughput volume.

Westports’ performance is expected to be driven by additional east-bound services from Ocean Alliance Inc (beginning from May), and higher yield is expected from greater local cargo growth.

BIMB estimates Westports’ 3Q container throughput to be circa 2.7 million-2.8 million twenty-foot equivalent units (TEUs) and the total nine months (9M19) container volume at circa eight million TEUs.

“Taking all the above into consideration, we have revised higher our financial year ending 2019 (FY19) container throughput growth to 10% from 5% previously.

Our forecast volume growth for FY20 and FY21 remains conservative at circa 3.4%-3.6% amid effect of higher based observed in FY19 and concerns on prolonged trade tension between the US and China that could further slowdown the global economy,” the firm stated.

Westports’ 3Q results are expected to be released today and BIMB has raised Westport’s earnings forecast for FY19-FY21 by 4%-4.2%, as the firm factored in higher container volume growth.

“Following the earnings revision, we have derived a higher target price of RM4.85 and maintain our ‘Buy’ call recommendation,” the research note stated.

This valuation is based on dividend discount model and implies an FY20F price-earnings ratio of 24 times, which is justified by stronger earnings-driven from throughput recovery outlook, plus expansion in profit margin.

“We continue to like Westports’ stable business model that combines attractive, high-yielding local cargo and volume-centric transshipment segment as well as a steady dividend payment stream that consistently rewards long-term shareholders,” BIMB explained.

Higher container volumes handled saw Westports’ net profit for the 2Q spike 36.54% YoY to RM166.32 million due to higher gross profit earned from the double- digit growth in container volume in the period and the implementation of higher container tariffs effective March 1, 2019.

Revenue for the quarter was up 15.33% YoY to RM454.45 million.

From April to June, Westports achieved a record-breaking container throughput by handling 2.74 million TEUs, driven by the increase of 1.83 million TEUs in transshipment containers and 0.9 million TEUs for gateway boxes.

For the first half of 2019, Westports’ net profit jumped 24.68% YoY to RM306.22 million.

Revenue for the six months rose 11.62% YoY to RM869.64 million.

The company has declared a first interim single-tier dividend of 6.74 sen to be paid on Aug 23, 2019.

Westports’ shares yesterday closed eight sen or 1.87% higher at RM4.35, valuing the company at RM14.8 billion.

BIMB added that other major domestic ports are expected to register better container volume growth this year due to the growing intra-Asia trade lanes, as well as trade diversion from the US-China trade war.

“We estimate Westports to lead the FY19 container throughput volume growth of circa 10% YoY followed by Port Tanjung Pelepas (PTP) circa 3% YoY,” it noted.

For 9M19, industry sources said Westports has achieved a total volume of circa eight million TEUs — on track to meet BIMB’s new forecast of 10.5million TEUs this year.

PTP is believed to have garnered 6.7 million TEUs for 9M19, and is likely to beat 2018’s nine million TEUs.

Northport (M) Bhd container volume may show a decline due to the relocation of some customers to Westports.

BIMB added that Westports faces competition from MMC Corp run ports apart from stiff competition posed by neighbouring Port of Singapore Authority.

The MMC group has five ports namely PTP, Johor Port, Northport, Penang Port, and Tanjung Bruas Port.

These ports have a combined total annual capacity of around 21.3 million TEUs as compared to Westports’ 14 million TEUs.

Nevertheless, for the greater Klang Valley area, Westports is still the main container and gateway port operator.

PTP’s volume growth is expected to remain stable due to its collaboration with Maersk A/S which provides circa 90% of PTP’s container volume.

“We expect the upcoming 3Q results will see PTP continue to make a significant contribution to MMC,” BIMB wrote.

It said the outlook for MMC’s ports and logistics operation appears resilient on account of recent tariff hike as well as upgrading of port facilities and efficiency.

MMC’s share closed unchanged at RM1.02 yesterday, valuing it at RM3 billion.
Source: The Malaysian Reserve

Comments
    There are no comments available.
    Name:  
    Email:  
    Comment:  
     
    In order to send the form you have to type the displayed code.

     
SPONSORS

NEWSLETTER