Westports' earnings will contract sharply in 2Q, says HLIB Research

TheEdge Tue, Jun 23, 2020 11:51am - 3 years View Original


KUALA LUMPUR (June 23): Hong Leong Investment Bank Bhd (HLIB) is expecting Westports Holdings Bhd to see its earnings contract sharply in the second quarter ending June 30, 2020 (2QFY20), owing to the full brunt of the Movement Control Order.

In a note today, HLIB Research analyst Nazira Abdullah said Westports' May container volume bottomed out by declining 24% year-on-year (y-o-y), much lower than April's container volume which saw a 17% drop y-o-y.

"This arises from the decline in domestic and global consumption due to Covid-19 and subsequently, lockdown in most countries," she said.

As for the June volume, Nazira said the y-o-y decline should be less severe compared with May.

Nonetheless, she expects Westports to go through a gradual recovery in the second half of the year to reflect global economic recovery, hence global trade, on the back of reopening in most countries and recovery stimulus packages.

"Overall, Westports is expecting its annual container throughput growth to record a double-digit decline (-10% to -20%) in FY20, which may come in below 10 million TEUs (twenty-foot equivalent units), before registering a positive growth in FY21," she added.

Meanwhile, Nazira highlighted that the outlook for the port industry remains cloudy in the near term stemming from the uncertainties of the economy from Covid-19, although on the longer time horizon, however, Westports' outlook remains upbeat underpinned by global trade in the manufacturing sector.  

"We anticipate cautious sentiment to persist and social distancing to remain in place, which could dampen consumption as we already saw in 1Q. The recent increase in unemployment data may also hurt consumption activities, thus affecting global trade," she explained.

HLIB maintains its forecasts and reiterates its "hold" call on Westports at RM3.72 with an unchanged target price of RM3.66.

"Although we like Westports for its stable business model [during normal circumstances] as well as stable dividend payout ratio of 75%, the Covid-19 outbreak has raised a near-term concern given the potential negative impact to volume," Nazira said.

In 1QFY20, Westports posted a 9.22% y-o-y increase in net profit to RM152.81 million, compared with net profit of RM139.9 million a year earlier. Wesports said the better results were mainly attributed to the implementation of a tariff hike, which began in March 2019.

Quarterly revenue for the group improved 14.03% to RM473.46 million, compared with RM415.18 million a year ago. The group said some of the increases in revenue were attributable to construction activities arising from the development work on a new jetty and CT9 container yard Zone Z.

In terms of container processing volume, Westports said it handled marginally lower container throughput of 2.52 million TEUs in the period.

At 11am, shares in Westports were trading down three sen or 0.81% at RM3.69 after 88,400 shares traded.

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