Cutting container throughput forecasts
We lower our DCF-based TP to RM3.87 (-3%, WACC: 7.5%, LTG: 2%), as we
cut our container throughput volume forecasts for Westports (flattish YoY
assumption now, vs. our previous forecasts of +2% YoY for FY22E). This is
to reflect the impact from intensifying supply chain pressure stemming
from China’s recent lockdown and rising geo-political risks, as well as
weakening consumer spending (which will likely cause demand for
containers to slow down) on the back of rising inflation. We have also
introduced an expanded ESG tear sheet for Westports and assigned it an
above average overall score of 62, based on its aggregated
quantitative/qualitative/target-based metric.
Expecting a contraction in 1H22 container volume
We are expecting a sluggish 1H22 for Westports (ie. container volume to
contract YoY), before it starts to recover in 2H22, mainly dragged by
China’s lockdowns that has brought production at many of its factories to
a standstill. Intra-Asia container throughput volume in 1Q22 has dived 45%
QoQ (-36% YoY). Typically, intra-Asia containers contribute close to twothirds of Westports’ total container throughput volume. Vessels calling at
Malaysia ports have also seen a sharp plunge to record lows in the recent
weeks, from the spillover effect of China’s lockdowns.
Rising port call duration = lower port efficiencies
Moreover, there is a trend of increasing port call durations as shipping
liners are taking a longer time to turnaround at the ports, especially in
China, Bangladesh and Vietnam. Disruptions at these ports will likely
trickle down to Westports (similar to what has happened previously).
Maintain HOLD on balanced risk-reward
Despite the near-term headwinds, there could be potential upside to our
earnings forecasts, arising from (i) conventional cargoes tariff increase
(which we believe is highly likely seeing as the previous tariff hike was
nearly a decade ago); and (ii) higher container revenues/TEU, as
Westports renews its expiring contractual obligations with the shipping
lines for a higher tariff rate. All in, we maintain our HOLD recommendation
on balanced risk-reward.