KUCHING: Westports Holdings Bhd (Westports) could see a challenging second half of 2017 (2H17) brought on by changes the global container shipping industry but analysts believe that the port operator could see a better financial year 2018 (FY18) from improved demands.
In a report, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said, Westports now believed that FY17’s overall container throughput could decline between seven to 12 per cent year-on-year (y-o-y), before flattening out in the first quarter of FY18 (1QFY18) and returning to growth from 2QFY18 onwards.
“We are slightly more optimistic, forecasting a 4.2 per cent y-o-y decline in throughput volume in FY17 and a growth of seven per cent y-o-y in FY18. Our slightly more upbeat view hinges on continued strength in external trade and an improvement in global container shipping demand.
“Apart from that, Westports could benefit from service updates carried out by shipping alliances, having expanded its container handling capacity via CT8 and CT9 phase 1,” it opined.
Meanwhile, the research arm of AmInvestment Bank Bhd (AmInvestment Bank) said, “We anticipate a challenging year for Westports in FY17, mainly due to the realignment of global shipping alliances in the container shipping industry, leading to lower container throughput in FY17 compared to FY16.
“However, we expect the throughput volume to return to positive growth from FY18 onwards with the realignment period completed and higher capacity at Westports.”
The research team added, “Westports’ CT8 Phase 2 expansion, consisting of a 300-metre wharf and supporting terminal operating equipment and facilities, has been completed in July 2017 and is expected to be commissioned into service soon.
“This would increase Westports’ total capacity to 13.5 million TEUS per annum. CT9 Phase 1 expansion, consisting of a 600-metre wharf, is on track to be completed by December 2017.”
Aside from that, MIDF Research noted that the formation of the Ocean Alliance, while larger than the O3 Alliance in capacity is adopting a dual-hub strategy in the straits of Malacca (previously: a single hub at Westports), has caused Westports to cede a portion of its transhipment cargo to PSA.
In addition, it said UASC has shifted out its transhipment containers following its acquisition by Hapag-Lloyd.
“That said, Westports offers one of the cheapest container handling tariffs on the strait. Coupled with its expansion initiative of CT8 phase 2 and CT9 phase 1, Westports stands a fair chance of regaining some of its losses in volume as it improves its container handling efficiency,” it opined.
Meanwhile, on Westports’ 2Q results, MIDF Research said, Westports was dealt an awful hand following the commencement of the new shipping alliances in April 2017 which are the CMA CGM moved 1m transhipment containers on an annualised basis to the Port of Singapore (PSA), UASC shifted its transhipment containers to PSA after being acquired by Hapag-Lloyd, there was an absence of ad-hoc containers, and its services with the Ocean alliance are backhaul voyages, with calls at Westports only beginning in mid-June.
“As a result, transhipment throughput volume dipped 17.4 per cent y-o-y in 2QFY17, the first decline in more than four years,” it said.
On the flipside, it pointed out that Westports benefitted from a timely rebound in exports, translating into a growth of 7.6 per cent y-o-y in 2QFY17 gateway throughput volume, which bodes well for Westports as gateway cargo have higher tariffs and hence, better yields.
“We are upbeat on the gateway segment in the second half, underpinned by our house’s forecast of a 14 per cent expansion in gross external trade in 2017.
“Meanwhile, THE alliance and other members of the Ocean Alliance, comprising of Cosco, Evergreen and OOCL recorded an increase in volumes handled at Westports, albeit being insufficient to match the decline brought from CMA and UASC,” it added.
All in, MIDF Research said Westports’ 2Q results were in line with expectations.
It maintained a ‘neutral’ call on the stock while AmInvestment Bank maintained its ‘hold’ call.