• Westports has commenced legal proceedings against Oracle and Bank of America (BoA) (Oracle’s outsource partner) on the termination of two agreements regarding Oracle Enterprise Resource Planning (ERP) software system subscriptions.

• Westports received a letter of demand from BoA for RM0.6mil after the termination of the two agreements. Oracle has also made a counter-claim of RM4.1mil for the services rendered after failing to reach an amicable settlement on this case. Westports is disputing against the counter-claim on the basis that the two agreements have been terminated, and is seeking the court to declare that the agreement terminations have negated the obligation to pay BoA.

• Based on our back-of-the-envelope calculation, should Westports lose the court case, it will have to pay a sum of at least RM4.7mil to Oracle and BoA, of which the impact to Westports’ earnings is negligible at not more than 1% of its FY20F earnings.

• We maintain our HOLD call, forecasts and FV of RM3.81 based on 21x FY21F EPS, at a 2x multiple discount to Westports average historical PE of 23x to reflect the growing consensus that a V-shaped recovery in the global economy, and hence global trade, is no longer the base-case scenario given the already highly visible trail of destruction left by the Covid-19 pandemic thus far.

• We believe the outlook for the port sector in the region (Malaysia included) is resilient, underpinned by global trade and investments in the manufacturing sector that generates tremendous inbound (feedstock) and outbound (finished product) throughput for ports. However, we are mindful of the soft patch ahead amidst a major slump in the world economy as well as world trade in the aftermath of the Covid-19 pandemic.

Source: AmInvest Research - 15 Jun 2020