KUALA LUMPUR: Westports Holdings Bhd's core net profit for financial years 2024 and 2025 is to be lacklustre at RM737 million and RM716 million, respectively, due to lower revenue from value-added services, higher operating costs and an increase in lease expenses.
Affin Hwang Investment Bank (Affin Hwang) said that although the firm is mildly optimistic about the signing of the Third Supplemental Privatisation Agreement (Third SA) with the government and Port Klang Authority and expects the project to be long-term earnings accretive, it believes the project may affect Westports' medium-term earnings.
"We like the extended concession tenure, Westports' commitment to sustainability and automation, and the manageable capital expenditure (capex) of RM12.6 billion.
"Westports is expected to finance this through borrowings and equity issuance ranging from RM800 million to RM1.2 billion," said Affin Hwang.
The research firm said the concession extension up to 2082 was longer than expected, and the estimated development capex for CT10–CT17 of RM12.6 billion was similar to its earlier guidance, which was a pleasant surprise considering the weakening of the ringgit and high global inflation over the last few years.
The signing of Third SA would allow Westports to finally kick-start its expansion, giving them a better head-start than potential competitors such as Carey Port and Thailand Land Bridge.
Conversely, the higher lease expense would erode its medium-term profitability (somewhat anticipated).
At the same time, the government's eagerness to push for Carey Port and Thailand's enthusiasm for the land bridge project may affect investor sentiment toward Westports, especially during the development stages between 2024-2026.
"Investors' concerns about potential competition from the Carey Port/Thailand land bridge project and Westports' lacklustre 2024–25 estimated earnings per share (EPS) outlook may cap share price performance," said Affin Hwang.
The research house has forecasted Wesports' earnings-per-share (EPS) by 3.0 per cent and 6.0 per cent for FY24 and FY25, respectively, after incorporating higher lease expenses of RM150 million per annum effective September 1, 2024.
"While we continue to like Westports for its strategically located ports and strong management team, its uninspiring 2024 earnings outlook and long development period for Westport 2 will likely cap share price performance.
"As such, we maintained a 'Hold' call with a revised target price of RM3.68 from RM3.60 after it tweaked its weighted average cost of capital (WACC) to account for a higher debt mix due to the expansion," said the research house.