KUALA LUMPUR: RHB research has upgraded Westports Holdings Bhd to a "Buy" as it turns optimistic on the country and region's trade prospects, with the company as the main beneficiary of a recovery.
It said in a note that as the largest marine port in Malaysia, Westports is poised to benefit from the recovery in trade activities, supported by the growth in the country's electrical and electronics and commodities exports.
RHB economics' optimistic stance on Malaysia's trade prospects for 2024 is supported by brighter global and regional economic landscape; the bolstering economic performance of China; and resurgence in the global technology cycle.
It also sees growth potential in the electric and electronic sector, which contributes 40 per cent Malaysia's exports, boosting the country's drive to attract more inward foreign direct investment (FDI).
The government has also instituted a range of initiatives and incentives aimed at stimulating FDI, such as tax incentives, reinvestment allowances, relocation incentives, and regulatory streamlining.
These measures aim to bolster Malaysia's FDI inflows relative to nominal GDP, which has generally exceeded those of other emerging markets in South-East Asia, underscoring its growth prospects.
"We believe that Westports will be the primary beneficiary of these developments, particularly given the intra-Asia segment accounts for 65-67 per cent of the group's throughput volume," it added.
Following the remarkable surge in container volume witnessed in Dec 2023, RHB research anticipates that the momentum will persist into the first quarter of 2024 (1Q24), with container volume expected to remain within the 2.3-2.8 million twenty-foot equivalent unit (TEU) range.
"This is primarily underpinned by a robust recovery in trade activities both domestically and across the intra-Asia region."As such, we estimate 1Q24 to see a year-over-year (yoy) improvement, pencilling a core net profit within the range of RM195-200 million.
RHB also lifted its earnings forecasts for Westports for FY2024-FY2026 by 4.0 per cent-4.5 per cent, as it raised its container assumptions by 6.0 per cent to 16 per cent for the same periods.
"We also upgrade its ESG score to 3.1 from 2.8 – encouraged by its green initiatives and decarbonisation efforts via electrification of terminal operating equipment. "This brings our new target price to RM4.52, after incorporating a 2.0 per cent ESG premium," said the research house.
