KUALA LUMPUR: AmResearch has upgraded Westports to Buy from Hold with a higher fair value of RM4.87 a share based on management’s expectations of a container tariff hike that could be announced in the next few months.
"Our fair value implies a fair PE of 22 times our upward revised FY16F EPS. At a conference call last Friday, management said they had obtained indications the authorities were amenable to the hikes.
"The hikes could be at 10%-30%. As such, we have incorporated a 15% tariff hike in gateway container traffic, leading to a 12% and 13% increase in earnings for FY16F and FY17F," it said in a note on Monday.
Even though the regulatory rates for transshipment containers would also rise, AmResearch is leaving their tariffs unchanged for the time being.
Transshipment containers are subject to long-term contracts with shippers, and the impact is still unclear. This means there is further upside to its fair value.
Furthermore,Westports has appealed for another five-year round of investment tax allowance that would lower its tax expenses.
Westports’ 1HFY15 net profit of RM242mil met expectations – accounting for 47% and 46% of AmResearch's and consensus forecasts, respectively.
It declared a DPS of 5.32 sen, representing a 75% payout, and translating to a yield of 1.3%.
"We deem the results to be in line. Management expects the 3Q result to be better than 2Q on the back of anticipated improved numbers on the Asia-China and Asia-Africa trade lanes, and sustained growth in the Asia-America lane," it said.
For 1HFY15F, total container volume was up 10% YoY at 4.4mil TEUs, accounting for 48% of its estimate.
Transshipment accounted for 71% of total throughput.
"We maintain our transshipment and gateway container traffic growth at 10% each for FY15F. Westports is maintaining the total container growth at 5%-10%," it noted.
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