Westports 3Q24 core net profit of RM228m was 12% higher qoq (+17% yoy) due to stronger operating performance and lower amortisation expense of the port infrastructure and concession assets given the extension of the port concession to 2070F (2054F previously) effective 1 Sep 2024.

Lower amortisation led to lower qoq port operating costs in 3Q24 but Westports also enjoyed reduced electricity tariffs and fuel costs as the market price of diesel fell (diesel is used by its port tractors and rubber-tyre gantry cranes). This helped lift port EBIT by 11% qoq since overall container port revenue in 3Q24 actually did not see significant uplift. Container port revenue rose just 1.2% qoq in 3Q24 as a sharp 5% qoq rise in gateway volumes was partially offset by a 5.2% qoq drop in transhipment (t/s) volumes as Zim (not rated, US$24.77) has not been permitted to call on ports in Malaysia since Dec

CGS said fortunately, Value Added Services (VAS) revenues rose qoq due to the yard congestion seen in 2Q24 and which extended into 3Q24; this lifted unit container revenue by 2% qoq, also assisted by the rising mix of gateway volumes. In summary, Westports delivered another good quarter due to the resilience of its container port business, which continues to benefit from the relocation of Chinese factories to the Klang Valley as a means of diversifying risk exposure to current and potential future US tariffs on Chinese exports.

Two major events could have implications for Westports next year
Westports guided for muted growth for 2025F container volumes; it is hoping for a small yoy growth in t/s volumes with the Zim effect moving into the background (we pencil in 2% growth, from -6% in 2024F) while gateway volumes should continue to grow (we factor in +6% yoy, from +10% in 2024F and +14% in 2023). Overall, CGS said it is expecting total container
volume to grow 3.8% in 2025F vs. +0.7% in 2024F. On the other hand, it is also assuming a normalisation in VAS revenues in 2025F as Westports's yard is currently decongesting.

A key risk is if US president-elect Trump raises tariffs on imports from China to 60% and on imports from other countries to 10-20%. The upside risk is for trade volumes to jump ahead of the higher tariffs but the longer-term implications are uncertain. Will higher tariffs on Chinese exports accelerate the 'China+1' strategy that has so far benefitted Malaysia or, in a downside risk scenario, will these tariffs crimp US buying power such that overall global trade growth is impacted negatively?

Separately, to fund th expansion of Westports, we expect the government to permit Westports to raise port tariffs next year,
although the timing and quantum have not been disclosed. We have pencilled in a 15% hike from 1 Sep 2025F and we have a Hold recommendation until the details are available.