Kenanga maintains market perform on Westports following tariff postponement

In an announcement yesterday, Westports said it received an unfavourable decision from the Royal Malaysian Customs and Finance Ministry on a tax matter that dates back to 2008.

KUALA LUMPUR: Kenanga Research said Phase Two of the revised container tariff will affect only gateway containers at Westports Holdings Bhd, which in Q218 constitute roughly 36% of its total container throughput.

This is because transhipments containers would still have to priced competitively to rival the regional transhipment ports to sustain market share.

Westports had announced last Friday that it had received a letter from the Port Klang Authority that the implementation of Phase Two of the revised container tarfiff would only take effect on March 1, 2018 instead of Sept 1, 2018. 

"Overall, while the delay would have an immediate adverse impact towards FY18 earnings, the positive takeaway from this is that it does represent the new government’s willingness in embracing the tariff hike. 

"We believe the postponement is seen as mostly to avoid coinciding with the implementation of SST, and thus, allowing businesses additional time to adapt to the price increase along their supply chain.

Kenanga Resaerch has made no changes to Westports Holdings Bhd's FY18E earnings as it had yet to factor in the tariff hike into its assumptions. 

However, it is revising its FY19E ernings up by 7% after takin ginto account the March 2019 implementation date of the tariff hikes. 

"Note that our earnings forecast numbers are based on the assumption of 3-5% container throughput growth for FY18-19. Furthermore, note that from this point onwards, any further deferment of the implementation date would warrant a downgrade in our FY19E numbers."

The research house maintained market perform on the counter following the FY19E earnings upgrade with a raise target price of RM3.75 from RM3.50 previously.