Westports’ earnings to remain broadly intact

The outlook for the port sector in the region is resilient, underpinned by global trade and investments in the manufacturing sector that generate tremendous inbound (feedstock) and outbound (finished product) throughput for ports.

KUCHING: Westports Holdings Bhd’s earnings will remain broadly intact despite the lower-than-expectation growth rate for twenty-foot equivalent units’ (TEUs) handled.

The research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expected Malaysia’s trade performance to rebound in 2021 primarily driven by the expected return to normalcy in global supply chain.

“With mass-scale vaccines inoculations, massive fiscal injections, and monetary policies support to rejuvenate economic growth, we believe these will be the drivers for the global economy to recover in 2021,” MIDF Research said.

“The International Monetary Fund (IMF) in its latest economic outlook, foresees higher global growth of 5.5 per cent in 2021, 0.3 per cent percentage point higher than its October’s version with a strong rebound in the US at 5.1 per cent year on year (y-o-y) and China at 8.1 per cent y-o-y.”

Based on the research arm’s economists’ estimate, Malaysia’s exports and imports growth will see 8.1 per cent y-o-y and 8.7 per cent y-o-y expansion respectively.

“If materialised, this positive economic condition will positively impacted Westports and propelled the growth of the group even further.

“Moving forward, our view for Westports is that the company’s earnings will remain broadly intact despite the lower-than-expectation growth rate for TEUs’ handled.”

The research arm of Kenanga Investment Bank Bhd (Kenanga Research) gathered that in terms of dividends, payout ratio guidance has been revised back to 75 per cent in financial year 2021 (FY21) from 60 per cent in FY20 with the approved new container terminal expansion project pending only land conversion preparation and concession agreement negotiation with the government.

“With total capital expenditure (capex) for Westports 2 (CT10-17) amounting to approximately RM10 billion, the new container terminals (CTs) are expected to nearly double in capacity to 27 million TEUs from 14 million TEUs spread over 20 years,” Kenanga Research said.

The research arm viewed this to be a very long-term play for the group with anticipated full completion by 2040, thus ruling out any earnings accretive development over the next few years.

“The global supply chain is adjusting to a combination of factors, such as higher consumer demand for containerised goods in Western economies, lockdowns and a global supply chain adhering to Covid-19 precautionary measures.”

Overall, looking beyond the pandemic, AmInvestment Bank Bhd (AmInvestment Bank) highlighted that the outlook for the port sector in the region (Malaysia included) is 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 the manufacturing base by multi-national companies out of China to the region due to the rising labour and land costs, exacerbated by the US-China trade war.

“Westports has charted a long-term expansion plan to capitalise on these.”

 

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