AmInvest downgrades Westports to ‘Hold’ on lower throughput forecast

The ‘Hold’ call is based on forecast that the logistic company may see container movements contract by as much as 15% in FY20


WESTPORTS Holdings Bhd is expected to experience a fall in container throughput via its port due to the weaker global economy.

AmInvestment Bank Bhd (AmInvest) has thus downgraded its recommendation on the port operator to ‘Hold’ from ‘Buy’ as the investment bank forecast the logistic company may see container movements contract by as much as 15% in its financial year ending Dec 31, 2020 (FY20), against a previous forecast of a 2% growth year-on-year (YoY).

The projection is based on much weakened Purchasing Managers’ Index (PMI) outlook across the globe and the forecast by Copenhagen-based container shipping industry expert Sea-Intelligence ApS of a 10% contraction in global container shipping volume this year — largely due to the slow- down in the Asia-Europe and trans-Pacific services.

For FY21, Westports’ container throughput is expected to rebound with a 10% jump from a low base against a 5% growth assumed previously.

“We cut our FY20 to FY22 net profit forecasts by 16%, 13% and 12% respectively, and reduce our fair value by 12% to RM3.81 based on 21 times revised FY21 forecast earnings per share (EPS), against RM4.31 based on 22 times FY20 forecast EPS previously,” AmInvest said in a report yesterday.

“We roll forward our base year and widen our multiple discounts to a historical average of 23 times to two times from one time previously to reflect the growing consensus of a V-shaped recovery in the global economy, and hence, global trade is no longer the base-case scenario given the already highly visible trail of destruction left by the Covid-19 pandemic thus far.”

Westports has guided for a slight YoY decline in container throughput in the first quarter ended March 31, 2020 (1Q20), the research house said.

The contraction could widen to double digits in 2Q20 in a worst-case scenario as the Covid-19 pandemic continues to wreak havoc on the global supply chain, as well as disrupt port operations.

Westports hopes to see some recovery in the second half ending Dec 31, 2020, assuming the virus is contained by then.

With regards to the Westports 2.0 expansion plan, the company has decided to take its foot off the pedal as priority is given to operational issues posed by the pandemic.

“We understand the company is currently going slow on its negotiation with the government in regards to concession terms and financiers on its project funding,” AmInvest added.

The investment bank stated that the outlook for the port sector in the region remains 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 manufacturing bases by multinational companies out of China to the region due to rising labour and land costs, exacerbated by the US-China trade war.

AmInvest cautioned a soft patch ahead amid a major slump in the world economy, as well as world trade in the aftermath of Covid-19.