- We downgrade Westports to a HOLD, with an unchanged DCF-derived fair value of RM3.40/share. This implies a forward PE of 22x on FY15F earnings.
- The stock has risen to a high of RM3.66/share (on 14 January 2015) – a 25% increase from RM2.93 on 6 November 2014 when we upgraded it to a BUY.
- At the current price, the stock is trading at 23x our FY15F earnings estimate – in line with the average PE of select regional port operators (See Exhibit 1).
- This is a level at which we believe it is entering into optimism for a government go-ahead to a tariff hike proposal for its gateway (import/export) container traffic.
- Our FY15F earnings forecast at RM526.2mil, which has yet to incorporate the potential tariff hike, is not far off the consensus estimate of RM529.8mil.
- At its 75% dividend policy and our earnings estimate for FY15F, our projection is for an 11.7 sen/share payout that translates into a yield of ~3.3% – in line with consensus estimates.
- As management had said, a tariff hike is not a done deal. Without the tariff hike, we believe the current price has priced in its potential organic growth in container traffic.
- Long-term growth will continue to be constrained by terminal handling capacity, notwithstanding the start-work on CT8 by early this year, which will raise capacity to 13.8mil TEUs by mid-2107 from 11mil TEUs now.
- Our current assumption is for capacity to rise to 13.5mil TEUs by FY17F and to 16mil TEUs (with CT9 coming onstream) by 2020.
- We estimate capacity utilisation at 80%-87% for FY15F and FY16F, and at 74% for FY17F. Beyond that and with the inclusion of CT9, we expect utilisation at 70%-82%.
- Our earnings estimates have also factored in an incentivised effective tax rate of 18% for the next five years from FY15F to FY19F.
- The lower effective tax rate is to account for a five-year Investment Tax Allowance (ITA). The current tax allowance cycle ended at the end of last year.
- HOLD for a 3.3% dividend yield and the potential tariff hike.
Source: AmeSecurities
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