Westports’ FY16 core earnings within expectations
KUCHING: Westport Holdings Bhd’s ( Wesport) fiscal year 2016 (FY16) core net profit of RM616.8 million met 100 per cent of consensus expectations.
According to the research arm of Kenanga Investment Bank Bhd ( Kenanga Research), the reported net profit has also met its expectations at 97 per cent and has previously been adjusted for Westport’s one- off investment gain in the first quarter of 2016 (1Q16) which amounted to RM20.3 million from the disposal of investment securities.
“Westport’s also declared a second interim dividend of 6.70 sen per share which brough FY17’s net dividend per share to 14.0 sen, representing a 75 per cent pay- out ratio of net profit, which is also in line with our expectations at 100 per cent,” added the research arm.
Other highlights of its results include an improved top line as its fourth quarter 2016 (4Q16) operational revenue saw a growth of 13 per cent year on year (y- o-y) to RM469.1 million after stripping out revenue contribution of RM103.0 million from its construction sector.
“The improved top line was largely driven by higher throughput movement in 4Q16, which grew by 9 per cent y- o-y, bringing 4Q16 total container movements to approximately 2.6 million twenty-foot equivalent units ( TEUs),” explained the research arm of Affin Hwang Investment Bank Bhd (Affin Hwang Capital).
The robust transhipment movements cont inued to underpin Westport’s expansion as stronger intra-Asia boxes boosted its y- o-y growth while gateway boxes saw a surprising performance despite domestic slow down due to seasonality factors.
Average unit revenue also saw a five per cent y-o-y growth which was a direct result of the tariff hike implemented in late 2015.
Looking forward, Kenanga Research is comfortable with Westport’s current situation and maintains its volume growth estimates for the company at 4.5 per cent in FY17 while introducing a modest FY18 growth of 3 per cent pending further updates on shipping alliances strategies.
The research arm is especially hopeful on an alliance with the United Arab Shipping Company ( UASC) whi le Westport ’ s management has guided that it expects similar port calls from existing clients of the OCEAN Alliance.
On the other hand, Affin Hwang Capital expects FY17 to a slower year for Wesports as they expect a potential withdraw of United Arab Shipping Company ( UASC) volume of up to 1 million TEUS to affect its earnings.
“That being said, this can free up precious capacity to capture THE Alliance, which has yet to finalise its transhipment hub for Southeast Asia. This could be a rerating catalyst if it materialises, as we and consensus have yet to price this in,” the research arm noted.
In line with Kenanga’s modest FY18 volume growth estimates, Afin Hwang Capital is also expecting Westport’s FY18 volume to contract based on a conservative assumption that the group will be unable to replenish its volume loss for UASC.
Due to this overhang on the alliance finalisation, Westport’s share price has witnessed a decrease of four per cent year to date.
In spite of this, both research arms remained optimistic on the stock due to its intact long-term structural growth with a wide economic moat.