Westports Holdings - P3 uncertainty a drag until mid-2014 HOLD

Date: 13/12/2013

Source  :  AMMB
Stock  :  WPRTS       Price Target  :  2.66      |      Price Call  :  HOLD
        Last Price  :  3.45      |      Upside/Downside  :  -0.79 (22.90%)

- We initiate coverage on Westports Holdings with a HOLD, based on a DCF-derived fair value of RM2.66/share (WACC:6.1%; terminal rate after Year 2024: 1%). This implies a forward PE of 21x on FY14F earnings.

- The valuation is on par with Singapore-listed Hutchison Port Holdings Trust’s FY14F 21x, and two to five notches below Bintulu Port’s PE of 23x, and the Philippines’ International Container Terminal’s 26x.

- Near-term catalysts are lacking, and we have factored in the potential impact of the P3 alliance members rerouting their Asia-Europe/Mediterranean port calls by 2H14. Last year, it handled 2.4mil TEUs from CMA CGM – comprising 1mil TEUs and 1.4mil TEUs of P3 and non-P3 volumes, respectively.

- We are projecting container throughput to rise by a slower 5% in FY14F partly due to the P3 impact and capacity constraints, and by 6% in FY15F as the new CT7 comes onstream. The estimate for FY13F is an at least 7.5% growth vs. 15% and 8% in FY11 and FY12, respectively.

- We forecast a conservative 3-year CAGR of 2.8% in core net profit for FY13F-FY15F, following an annual rate of 12% over the past two years, on the back of slower container throughput growth, higher depreciation and higher effective tax. Notwithstanding the potential P3 impact, Westports’ longer-term prospects continue to be supported by:-

1) Its position as a global-standard transhipment hub amid growing intra-Asia and inter-regional trade. Notably, Westports will be a prime beneficiary of the Malaysia-China GTG bilateral deal to nearly triple trade between the two countries to RM500bil by 2017 from RM180bil last year.

2) Westports is one of the stronger performers, with its EBITDA margin (excluding construction) and ROE among the highest at ~52% and ~27%, respectively, for FY13F.

3) A 16% capacity expansion to 11mil TEUs by 2015 upon the completion of CT7, and two additional berths later on with another 5mil TEUs, depending on demand.

4) A dividend policy of 75% backed by strong operating cash flow of RM500mil-RM700mil annually – offering an annual yield of ~4% at the current level.

- The main upside risks to our projections are an upward tariff revision, which was last made a decade ago, and a smallerthan-expected impact from the P3 rerouting.

- The main downside risks include a more-than-expected reduction in the P3 volume and a third container port at Port Klang being awarded to another party.

Source: AmeSecurities

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