Int’l Container Terminal Services (ICT PM) Analysis – Maybank Securities Inc

Maybank Securities Inc – November 12, 2024

Overview

Int’l Container Terminal Services (ICT PM) has reported a robust increase in core net income for the first nine months of 2024, positioning the company favorably amidst market volatility. Despite a recent dip in share price, the future outlook remains positive, leading to an upgrade recommendation to BUY.

Financial Performance Highlights

Revenue and Volume Growth

ICT’s revenue from port operations rose by 14% year-on-year (YoY) to USD 2.01 billion in 9M24, despite a modest volume growth of 1.6% YoY. The revenue increase was driven by significant gains in the Americas (up 31.1% YoY), while Asia and EMEA saw revenue increases of 6.3% YoY and 3.7% YoY, respectively. Excluding the impact of new and discontinued ports, overall volume would have increased by 5%, with Asia and EMEA volumes rising by 10.2% YoY and 7.5% YoY, respectively.

Future Outlook

The company projects a 6% organic volume increase for FY25E, driven by continued growth in Asia and the Americas, alongside a recovery in Ecuador. Despite the potential impact of a second Trump presidency, ICT’s diverse portfolio and presence in emerging markets are expected to mitigate any adverse effects from potential trade wars.

Durban Port Concession

The timeline for the Durban port concession remains indefinite, with the next hearing potentially taking place no earlier than March 2025. The addition of the Durban port could significantly enhance ICT’s fair value.

Company Description and Statistics

ICT is a global port management company with operations in both emerging and developed markets. The company is the Philippines’ largest port operator, managing 32 terminals across 19 countries, with a total handling capacity of 20.4 million TEUs. Founder Enrique Razon retains a 62% stake and actively manages the company.

Key Metrics

• 52-week high/low (PHP): 438.00/203.40
• 3-month avg turnover (USDm): 10.2
• Free float (%): 51.2
• Issued shares (m): 2,001
• Market capitalization: PHP 760.9B / USD 13.0B

Financial Metrics and Forecasts

Income Growth

ICT forecasts a 55% income growth in FY24E, driven by higher yields from the Americas and volume growth from Asia. The company expects yield/TEU to improve to the USD 215 range, up from the USD 187 range. Gross revenue from port operations is projected to rise by 17% in FY24E and 10% in FY25E.

Geographic Concentration

In 2024, ICT’s revenue and costs from port operations are well-matched across various currencies, reducing risks from currency fluctuations.

Environmental, Social, and Governance (ESG) Commitments

Environmental Initiatives

ICT commits to achieving net-zero Scope 1 and 2 emissions by 2050, with a 26% reduction in emissions. The company adheres to international standards such as ISO 14001 and ensures compliance with local environmental laws.

Social Initiatives

ICT employs 10,297 staff across 28 terminals, with a focus on community support through education, sports, and welfare programs. Around 58% of the labor force is unionized, with collective bargaining agreements in place at half of the terminals.

Governance Practices

ICT’s board comprises seven members, including one executive director, three independent directors, and three non-executive directors. The company maintains several committees for governance, audit, and related party transactions.

Valuation and Peer Comparison

Valuation

Using a discounted cash flow (DCF) model with a WACC assumption of 6.3%, ICT’s fair value per share is computed at PHP 432. The valuation reflects ICT’s managed risk exposures given the diversity and maturity of its ports.

Peer Comparison

• Westports Holdings Bhd: 2025 P/E 17.32, EV/EBITDA 10.83, P/BV 3.78
• COSCO Shipping Ports Ltd.: 2025 P/E 7.30, EV/EBITDA 3.54, P/BV 0.73
• Hutchison Port Holdings Trust: 2025 P/E 5.69, EV/EBITDA 5.97, P/BV 0.24
• Qingdao Port International Co: 2025 P/E 6.40, EV/EBITDA 7.02, P/BV 0.69
• Societe d’Exploitation des Ports: 2025 P/E 30.73, EV/EBITDA 12.57, P/BV 9.92
• Adani Ports & Special Economic: 2025 P/E 27.57, EV/EBITDA 18.24, P/BV 4.68

Conclusion

Despite current market volatility, ICT’s diversified portfolio and increased TEU yields position the company well for future growth. The comprehensive analysis and forecast indicate a favorable outlook, supporting the upgrade to a BUY recommendation by Maybank Securities Inc.