KUCHING: Westports Holdings Bhd (Westports) has garnered neutral views from AmInvestment Bank Bhd (AmInvestment Bank) given that the group has been affected by the recent reshuffling in global shipping alliances.
According to AmInvestment Bank which also maintained ‘hold’ on Westports, the port operator’s fundamentals and growth prospects have been dented by the recent reshuffling in the global shipping alliances.
“Not helping either is the slowing global economy and trade that will weigh down on port operators worldwide,” the research firm said.
“However, Westports could be poised for a major re-rating if the government decides to allow the 15 per cent hike in Port Klang’s container tariff on March 1, 2019.”
AmInvestment Bank cut its financial year 2018-2019 (FY18-19F) net profit forecasts by eight per cent and five per cent respectively.
The research firm’s earnings downgrade stemmed largely from housekeeping and the reduction in our FY19F container throughput growth rate assumption to three per cent per annum (from five per cent previously).
However, AmInvestment Bank maintained its FY18F container throughput growth rate of five per cent.
“We understand that for the first 11 months of FY18 (11MFY18), Westports’ container throughput grew close to five per cent year on year (y-o-y), versus only two per cent y-o-y for 9MFY18, thanks largely to exceptionally strong gateway and transshipment volumes in the months of October and November.”
“Our forecasts (and most likely the consensus estimates as well) have not reflected the 15 per cent hike in Port Klang’s container tariff on March 1, 2019. Our conservatism is premised on the Pakatan Harapan government’s commitment towards containing the rising cost of living.
“A higher container tariff will increase the overall cost of imports, which will filter down to higher cost of imported goods for consumers. Similarly, a higher container tariff will raise the overall cost of exports, eroding competitiveness of Malaysian exporters.”
AmInvestment Bank highlighted that Westports guided for a three to eight per cent growth in volume throughput in FY19F, underpinned largely by the growing intra-Asia and Asia-Europe sectors, coupled with the “low base effect” from a 9.3 per cent contraction in FY17 due to the negative impact from the shuffling of the global shipping alliances.
However, the research firm did not entirely share Westports’ optimism.
“Apart from the weak global macro picture (that will hurt global trade) as mentioned, we are mindful of certain one-off items in FY18F which are unlikely to recur in FY19F, that is plastic waste imports into Malaysia (which are now under scrutiny by the authority) and front-loading activities globally ahead of the imposition of tariffs on Chinese imports by the US.
“As mentioned, we only project Westports’ volume throughput to grow by three per cent in FY19F, which is at the low end of the company’s guidance for three to eight per cent.”
On another note, AmInvestment Bank shared Westports’ cautiousness on the potential of Cosco-Ocean Alliance making Malaysia one of its transshipment hubs in Southeast Asia over the immediate term, despite the involvement of the Malaysian government in the “marketing” effort.
The research firm acknowledged the strong working relation between Cosco and the Port of Singapore.
“As recent as November 2018, Cosco Shipping Ports and PSA Corporation signed a Memorandum of Understanding (MoU) for two more new berths, boosting the total mega-vessel berths at their joint venture (JV) termimal (Cosco PSA Terminal) in Singapore to five, with annual handling capacity rising to five million twenty-foot equivalent units (TEUs) from three million TEUs currently.”
AmInvestment Bank also noted that by 2040, Westports plans to more than double the number of the group’s container terminals to 19 (with the addition of CT10 to CT19), from nine at present (CT1 to CT9), and in terms of handling capacity, to 30 million TEUs from 14 million TEUs at present.
“However, with its overall utilisation dipping below 70 per cent following the recent completion of CT8 and CT9, coupled with the uncertain global economic outlook, Westports will take its foot off the pedal in terms of major capex over the medium term.”