Resilient port sector rides out Covid-19 storm, worst seems over

PETALING JAYA: The worst may be over for seaport operators as economies, businesses and borders reopen, translating to a recovery in global trade, and hence improvement throughput the sector.

In a note, AmInvestment Bank Research (AmResearch) said beyond the pandemic, the outlook for the port sector in the region (Malaysia included) is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports.

“There have been significant relocations of the manufacturing base by multinational companies out of China to the region due to the rising labour and land costs, exacerbated by the US-China trade war. Westports has charted a long-term expansion plan to capitalise on these,” it said.

The research house has upgraded its call on Westports Bhd to ‘buy’ from ‘hold’. It has also raised its FY20, FY21 and FY22 net profit forecasts by 10%, 7%, and 2% respectively, and upgraded its fair value estimates by 17% to RM4.45, from RM3.81.

AmResearch pointed out that although Westports’ net profit came in at 55% of its full year forecast, it believes that the variance is largely due to a lower-than-expected contraction in container throughput volume of 17% against an anticipated decline of over 20%.

“We now therefore assume in our forecasts a smaller contraction in its FY20F container throughput of 9% (vs 15% previously), but a smaller growth in FY21F of 7% (vs 10% previously) due to the high base effect,” it said.

For the second quarter ended June 30, Westports’ net profit fell 19% to RM134.34 million from RM166.32 million given the reduction in container and conventional throughput due to Covid-19 and the decrease in operational revenues.

Its revenue fell 6% year on year to RM431.60 million from RM4 54.45 million last year.

The group handled a container throughput of 4.80 million TEUs during the first six months of 2020 as the pandemic disrupted economic activities across the world.

CGS CIMB, too, projected a more promising container volume for the third quarter onwards.

“In the first three weeks of July, Westports’ container volumes were actually flat year on year, which is a very encouraging sign. In light of this, Westports has revised its volume forecasts up, from a 10-20% y-o-y decline for FY20F, to 5-10% y-o-y drop for 2H20F.

“Our volume estimates previously factored in a 15% drop for FY20F, but we have now assumed a 5.8% decline instead, factoring in the positive sequential momentum in June and July,” it said.

Affin Hwang Capital acknowledged Westports’ resilient performance and raised its 2020-22 earnings forecasts by 2-12% after incorporating higher revenue per TEU and higher value-added charges.

It has also revised its target price to RM3.95, from RM3.85 but maintains a ‘hold’ rating on the counter.

The research house pointed out the decline in Westports’ net profit from lower operating revenue due to lower container volume was partly cushioned by higher reefer charges and an increase in gateway tariffs.

Affin Hwang also noted that Westports has unexpectedly lowered its dividend payout ratio to 60% (from 75%) to conserve cash, and declared a lower DPS of 5.05 sen for six months 2020 (six months 2019: 6.74 sen).

Subsequently, the group’s management plans to raise the payout ratio back to 75% in 2021.

Notwithstanding the steady recovery in container volume, the research house said, there are still plenty of uncertainties ahead and management expects its second-half 2020 container volume to decline by 5% to 10% from second-half 2019.

Westports has charted a long-term expansion plan

source https://www.thesundaily.my/business/resilient-port-sector-rides-out-covid-19-storm-worst-seems-over-EN3179240