PETALING JAYA: Shares of Malaysia’s largest port operator Westports Holdings Bhd fell, following news that the second phase of a tariff hike will be delayed for six months until March next year.
Analysts said the development was a negative surprise for the market, which had priced in a stronger second half (H2’18) outlook for the port operator due to this catalyst.
“We have cut our earnings forecast by 4% on a direct negative impact on gateway container yields and an indirect impact on transshipment in the coming years.
“Current valuations do not suggest good risk reward. Downgrade from hold to sell with a lower target price of RM3.25,” said UOB Kay Hian in its report.
The stock slid 18 sen, or 4.7%, to close at RM3.62.
Last Friday, Transport Minister Anthony Loke announced that the second phase of Port Klang’s container tariff increase of 13% will be delayed from the Sept 1, 2018 implementation to March 1, 2019.
The tariff hike was part of the planned overall 30% increase in tariff charges implemented since November 2015.
According to the minister, the rationale behind the deferment of the tariff hike was to give more time to industry players and port users to adapt and stabilise their operations after the sales and service tax comes into effect On Sept 1.
UOB Kay Hian said the tariff hike was supposed to be Westports’ key earnings catalyst for financial year 2018, as the market had factored in a stronger H2’18 versus the weak H1’18 performance.
Meanwhile, CGS-CIMB said the six-month delay was an acceptable compromise, paying heed to the complaints of the Federation of Malaysian Manufacturers, yet recognising that the hike was a critical and necessary component of Westports’ plan to accumulate the necessary funds to ultimately double its port-handling capacity from 15 million twenty-foot equivalent units (TEUs) per year to 30 million TEUs per year.
It said that the expansion of the Westports container terminal was probably the most cost-efficient way of port capacity expansion, given that the earlier-proposed Carey Island project was a greenfield port project.
“The inability of Northport to expand materially makes the Westports 2 project even more vital and, to top it all off, Westports is planning to fund the entire RM14bil project capex (our estimate) on its own balance sheet, which means that the Government does not need to come up with a single sen.
“All these attributes mean that the federal government will most probably give the Westports 2 project its wholehearted support, in our view,” it said in a report yesterday.
The research house said it was keeping its “add” call unchanged, with share price catalysts to come from the volume recovery, in line with stronger consumer sentiment and from the Westports 2 expansion project.