PETALING JAYA: Westports Holdings Bhd
would see a substantial jump in earnings next year onwards if the government approves the port operator’s request for a hike in container tariffs, analysts say.
A 10% increase in tariff could raise earnings by 25% in the financial year of 2025 (FY25), according to AmInvestment Bank Research.
Meanwhile, CGS-CIMB Research pencilled in a 15% tariff hike in September 2025 and another 13% in September 2028.
However, there is no guarantee that the Transport Ministry will provide a green light for the tariff revision. Without the hike, UOB Kay Hian Research said investors may perceive the expansion of Westports 2 “negatively”.
“Any tariff hike increase will be an immediate boost to gateway revenues, but for transshipment contracts, there is usually a rebate, and the rate revision will be gradual across a few years, depending on the contract renewal periods and the customer,” it said.
Westports, the largest port operator in Malaysia, has started the negotiation to secure tariff hikes and hopes to begin levying the new charges in the second half of this year, according to CGS-CIMB Research.
The support of the Port Klang Authority (PKA) has already been secured.
Westports says it needs the tariff hikes to cover inflation, to close the gap with regional ports, such as Jakarta and Manila – where tariffs are more than 50% higher, according to Westports.
The higher tariff is also needed to pay for the Westports Phase Two expansion project.
Recall that, after much delay, Westports has signed a Third Supplemental Privatisation Agreement with the federal government and PKA governing the development of container terminals (CT) 10 to 17, which also entails the extension of the port operation concession for both existing facilities (CTs one to nine) and new facilities (CTs 10 to 17) by 58 years from September 2024 to August 2082.
The new CTs are expected to nearly double its capacity to 27 million twenty-foot equivalent (TEUs) from 14 million TEUs, spread over 26 years.
The lease payment changes from the Westports 2 expansion alone will impact the earnings base by 5%, hence making the higher tariffs more crucial for the operator.
It is noteworthy that Westports had a 30% tariff hike but this was split into two periods, the last being in 2019.
TA Research said Westports’ efforts to secure tariff hike is a “tedious process” that will affect Malaysian export competitiveness.
“As such, we maintain the current tariff until the government approval is granted,” it said.
CGS-CIMB Research recommended investors to exercise caution “for now” as there is no guarantee that the government will permit the tariff increases that will make capital expenditure-heavy Phase Two viable, which is a de-rating catalyst.
“A potential upside risk is Westports securing higher rates or rates are implemented sooner.
“We reiterate our ‘reduce’ call on Westports until there is more certainty on the quantum and timing of tariff increases that the government will permit for Westports,” it added.
Looking ahead into 2024, CGS-CIMB Research expects Westports’ gateway volume growth to remain robust.
Westports is guiding for a “low single-digit” increase in container volumes for FY24, claiming that the Malaysian ban on Israeli liner Zim from docking at Westports since late-December 2023 will result in the loss of transshipment volumes amounting to 2% of its total container traffic
“Nevertheless, we pencil in about 5% container volume growth in FY24 (trans shipment: plus 4%; gateway: 6%) to take into account historical management under-guidance,” it said.
Last year, Westports’ container volumes grew 8.2% year-on-year (y-o-y) in FY23, much higher than Westports’s guidance of 0% to 5% growth at the start of last year.
Transhipment volumes rose 4.4% y-o-y in FY23, partially recovering from the 9.9% fall in FY22. Gateway volumes rose a strong 14% y-o-y.
