Investment Highlights

• We keep our FY19–20F forecasts relatively unchanged but raise our FV by 5.3% to RM3.94 (from RM3.74) as we roll forward our valuation base year to FY20F (from FY19F). We value Westports at 21x forward earnings, at about a 10% discount to its average 5-year historical forward P/E of 23x. This is to reflect the subdued outlook for the port sector over the short to medium term on slowing global economy and potential headwinds from the US-China trade tension. Maintain our HOLD call.

• In the absence of news suggesting otherwise, from today onwards, Westports is allowed to raise it container tariff by 13% under the Port Klang Authority (Scale of Rates, Dues and Charges) (Amendment) By-Laws in 2015. To recap, this hike was originally scheduled to take effect on 1 Sep 2018, but was deferred by the government to 1 March 2019 as the government felt that it needed to “give more time for port users and other industry players to adapt and stabilise their businesses, following the implementation of the sales and services tax (SST) (on 1 Sep 2018)”. This is the second part of a 30% hike allowed under the by-laws following the first hike of 17% on 1 Nov 2015.

• The hike generally only affects the “captive” gateway segment that makes up 25%–35% of Westports’ total container throughput. We expect Westports to maintain the effective rates for the transshipment segment given the stiff competition from local and regional transshipment ports.

• Ceteris paribus, the latest hike boosts our FY19–20F net profit forecasts by 6.3% and 7.9% respectively. However, as mentioned, we are keeping our FY19–20F forecasts relatively unchanged after reflecting higher depreciation charges and operating cost, to bring ourselves more in line with the numbers announced in the recent FY18 fullyear results.

• We remain neutral on Westports. On one hand, we believe the port operator has weathered the negative impact from the global shipping alliances reshuffling in 2016. On the other hand, we are concerned about the slowing global economy and trade that will weigh down port operators worldwide. Our forecasts assume Westports’ container throughput to moderate to 4% per annum in FY19–21F, vs. the 5% achieved in FY18.

Source: AmInvest Research - 1 Mar 2019