AmInvestment Research retains Hold for Westports

AmResearch is maintaining its Buy on Westports

KUALA LUMPUR: AmInvestment Bank Research is retaining its Hold call for Westports with an  unchanged fair value (FV) of RM4.16 a share as it maintains its our numbers for now, pending greater clarity from the implementation of the shipping alliances. 

It said on Monday the FV of RM4.16 implied a 24 times price-to-earnings (P/E) on FY16F earnings per share (EPS) and at a 15% discount to its discounted cashflow value of RM4.87 a share.

AmInvestment Research said the bankruptcy of Hanjin Shipping Co., South Korea's largest and world's eighth by capacity, will not have a significant impact on Westports as its cargo accounts for less than 3% of the port's throughput.

Following similar moves in South Korea, Hanjin last Friday filed for bankruptcy protection in the US to protect its vessels from being seized by creditors. It is reported that Hanjin represents nearly 8% of the trans-Pacific trade volume for the US market.

As creditors earlier reportedly seized ships and terminal operators refusing to handle its cargoes, Hanjin's collapse would be the largest container-shipping failure, compared with other carrier bankruptcies before this.

Hanjin's throughput at Westports comprised mainly gateway traffic. 

“We believe it would not have any significant impact on Westports, which has already been impacted by flat growth in imports and exports. 

“For 1HFY16, gateway growth was flat at 0%, while transhipment grew at 15.2%, leading to a core profit of RM311mil (+28% on-year), which met expectations, representing 53% and 51% of our and consensus estimates, respectively,” it said. 

AmInvestment Research said in 2QFY16, transhipment grew at a strong 21% on-year, as it benefited from more ad-hoc calls. Gateway volume was flat at +1.5%, for an overall container traffic growth of 15%. 

“Our model expects only a 3.25% growth in container throughput.

“While Westports has gained from ad-hoc calls by shippers, uncertainties remain over the shake-up in shipping alliances, which could result in traffic being shifted to Singapore. 

“Management has said it would have greater clarity by October on how the Ocean Alliance will implement a two-hub strategy in the region. 

“Management continues to see positive growth for next year, while the exact impact of the alliance shake-up is still too early to tell for 2018,” it said.

Meanwhile, Bernama reported that an alliance between six Malaysian and 11 Chinese ports will fuel the development of shipping, logistics and related industries in both countries, as part of China's “One Belt, One Road."

The ports are Penang Port, Port Klang, Kuantan Port, Malacca Port, the Port of Tanjung Pelapas and Bintulu Port. 

No details were provided, but the Malaysian government is hoping that the six ports can be developed quickly, encompassing the surrounding areas, including the industrial sector and property development.
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