Port operators safe from Covid-19 impact this year

MMC will experience 3% YoY growth for TEUs for FY21, driven by recovery in container throughput and conventional cargoes


PORTS players are likely to perform well in the financial year 2021 (FY21) and be spared from earnings fallouts typical of other businesses during the Covid-19 pandemic.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Ummar Fitri noted that governments and businesses are more adept at managing the pitfalls of the pandemic to ensure goods supply reaches consumers.

“This is unlike what happened last year when the pandemic was at infancy, yet the supply chain of goods was congested for months at the end.

“Consumption remains robust, buoyed by massive economic stimulus and global economies passing the nadir,” Ummar wrote in a sectoral report yesterday.

He added that global markets have yet to see a sustainable and true economic recovery despite the pent-up demand and return to normalcy, accentuating the rebound.

“Our view is cemented further as we observe encouraging numbers coming in for the first quarter of calendar year 2021 for container throughput. We opine this signifies healthy and growing global trade flows despite the unabated pandemic,” he said.

At this juncture, MIDF Research is ‘Neutral’ on the sector as the scenario of recovery remains at a nascent stage.

“The pandemic is still raging and vaccine rollouts are still in their infancy despite some remarkable progress,” Ummar wrote.

MIDF Research noted possible regional supply chain congestion and localised outbreak of Covid-19 infection in ports facilities are a real possibility and will negatively impact the performance of port players.

The analyst added that both port operators MMC Corp Bhd and Westports Holdings Bhd are expected to see a higher volume of container throughput this year.

MIDF Research maintained its previous estimates that MMC would experience 3% year-on-year (YoY) growth for twenty-foot equivalent units (TEUs) for FY21, driven by a recovery in container throughput and conventional cargoes for the group’s smaller ports, such as Penang Port and Johor Port, at 10% YoY, compared to a contraction of 17% YoY suffered in FY20.

For the Port of Tanjung Pelepas, MIDF Research applied a more conservative assumption of similar performance as last year, handling 9.85 million TEUs.

Similarly, MIDF Research is positive for Westports.

“Management guided for low single-digit growth operationally. We translate this to a projection of 5% YoY growth to 11.01 million TEUs,” Ummar noted.

He noted that the conclusion of Westports’ concession agreement with the government regarding Westports 2 by this year could be a positive development for the port operator.

Westport 2’s expansion plan is expected to increase capacity by roughly 50% to 28 million TEUs per annum by 2040, allowing the port operator to compete more effectively for transshipment volumes against Port of Singapore, which has plans to raise capacity from around 40 million TEUs to 65 million TEUs by 2040.

However, Ummar advised investors to watch out for the level of recovery and growth for operational statistics of both companies (MMC and Westports), as lower than expected quarterly throughput could be a preliminary signal of underwhelming performance due to the economic rebound not panning out.

The lagging impact between successful vaccination programmes and economic growth might be longer than expected due to a cautious populace and careful governments.

MIDF Research maintained a ‘Buy’ rating on MMC with a higher target price (TP) of RM1.40 against RM1.20 previously, considering the recent price ascension.

It believes MMC’s shares price still has room to soar given the low valuation at below -1 standard deviation at 9.6 times price-to-earnings ratio.

For Westports, it maintained a ‘Neutral’ stance with a higher TP of RM4.45 from RM4.32 previously.

MMC’s shares rose 8.33% to RM1.30 at noon break yesterday, a new high since October 2018, before the trading was suspended ahead of a privatisation exercise by its major shareholder Seaport Terminal (Johore) Sdn Bhd via a selective capital reduction exercise at RM2 a share.

Westports’ shares were unchanged at RM4.32 yesterday, valuing the company at RM14.7 billion.