Westport’s 4Q earnings to be flat as yard congestion continues


WESTPORTS Holdings Bhd’s net profit for the upcoming fourth quarter of 2021 (4Q21) is expected to remain flat at the 2Q21 and 3Q21 run-rate, as yard congestion continues to suppress throughput and elevate operating expenditure, according to CGS-CIMB Research.

Its analyst Raymond Yap has forecast a 4Q21’s core net profit of RM179 million for Westports, similar to its 3Q21’s RM178 million profits as fuel and other operating costs may continue to rise.

Yap added that the financial year 2021 forecast (FY21F) core net profit of RM722 million is expected to be 7% higher year-on-year (YoY) due to the suppressed earnings in the first half of 2020 as the Covid-19 pandemic hit.

Westports’ 3Q21 core net profit of RM178 million was 13% lower YoY due to the negative impact of yard congestion on the port’s operations.

With yard utilisation at above 95%, Westports effectively underutilised its quay cranes as it could no longer accommodate more boxes at its container yard and had to turn away demand for more ship calls, Yap noted.

He added that container shipping companies had to store boxes destined for Vietnam and Bangladesh in Westports’ yard due to Covid-19 related lockdowns in both those countries and the resulting impact on port productivity.

“With boxes stacked to maximum height at its container yard, Westports’ terminal tractors and rubber-tyre gantry cranes had to constantly reshuffle boxes to get to the required boxes, which meant that operating costs such as labour, fuel and maintenance were higher than they would have been in the past for the same volume of quay crane throughput,” Yap wrote in a research note on the port operator yesterday.

To make things worse, the strict lockdown imposed by Malaysia in mid-2021 also caused a slowdown in 3Q21’s gateway cargoes, which dropped 18.4% YoY and 11.6% quarter-on-quarter (QoQ).

Yap stated transhipment cargoes fell 6.3% YoY but rose 5.3% QoQ during 3Q21. The negative YoY comparison was also due to the strong 3Q20 base, which saw a surge in volumes as global economies emerged from strict 2Q20 lockdowns at the start of the Covid-19 pandemic.

CGS-CIMB Research has maintained a ‘Hold’ call on Westports with a lower discounted cashflow-based target price (TP) of RM4.14 compared to RM4.18 previously.

The TP was slightly reduced due to the additional RM60 million tax burden in FY22F arising from the prosperity tax that was announced during the tabling of the Budget 2022, Yap noted. The broker has also reduced Westport’s FY21F core earnings per share (EPS) by 1.55% due to lower container volume growth expectations, but largely offset by higher value-added services revenues.

“We have cut our container volume growth forecast for FY21F to 1.7% YoY, from 5% growth previously, on account of the ongoing container yard congestion.

“We now forecast absolute container volumes of 10.69 million twenty-foot equivalent units (TEUs), down from 11.04 million TEUs previously.

“Our FY22F’s core EPS forecast for Westports has been reduced by 7.5% on account of the increase in effective tax rate from 24% to 30% due to Malaysia’s one-off prosperity tax for the year of assessment 2022,” he added.

The prosperity tax unveiled in Budget 2022 last Friday, will apply to next year’s earnings only and the first RM100 million in taxable profits will be taxed at the prevailing corporate tax rate of 24%, but profits above RM100 million will be taxed at a higher rate of 33%.

CGS-CIMB Research’s new forecast suggests Westports’ FY22F core net profit will decline 7.7% YoY.

“We have not changed our container volume assumption for FY22F of 11.59 million TEUs. This implies container volume growth will accelerate to 8.4% YoY in FY22F, which is possible if global lockdowns and the resulting disruptions to port activity are eased next year and if consumer spending in Malaysia picks up in 2022 from the lockdown-impacted 2021,” he added.