- We maintain HOLD on Westports, with an upward revised DCF-derived fair value of RM4.35/share. Our fair value implies a fair PE of 29x FY15F EPS (see Exhibit 4 for peer comparisons).
- Westports’ 1QFY15 net profit of RM120mil (+10% YoY, -21% QoQ) met expectations – accounting for 24% and 23% of our and consensus forecasts, respectively. No dividend was declared.
- The 1Q for the previous FY14 had represented 21% of fullyear profits. This indicates potential upsides in earnings over the next three quarters. We raise our earnings forecast by 4% to RM512.6mil for FY15F.
- Container throughput in 1QFY15 rose 17% YoY to 2.26mil TEUs (transshipment: +20%, gateway: +11%) – in line with expectations and representing 25% of our estimate. Transshipment accounts for 73% of total throughput.
- We have upped our transshipment growth assumption to 10% from 8% previously and maintain gateway growth at 10%. Westports is maintaining its growth target at 5%-10% for now.
- Management cautioned that the transition in shipping alliances among the major operators in 1QFY15 had resulted in overlapping and ad hoc services at Westports that contributed to the stronger volumes.
- Without these, transshipment would possibly have grown by a lower 12%-13% instead of 20%. Regardless, we raise our transshipment growth assumption by 2ppts on the balance of further potential growth from the Ocean Three (O3) Alliance. Its members CMA CGM, CSCL and UASC are using Westports as their shipping hub in the region.
- Management expressed confidence in receiving a positive response from the government to its proposed container tariff hikes, though the timing and quantum still remain undetermined. As expected, Westports had also benefitted from lower fuel and electricity costs.
- We believe Westports is fully valued, pending the announcement of its proposed tariff hike. Adjustments to our DCF-model include lower costs of debt and equity, and lower beta (Bloomberg: 0.46 vs. our assumption of 0.5 previously) (see Exhibit 3).
- HOLD to wait out the decision on the proposed tariff hike. Yields have been compressed to just 2.6% for FY15F.
Source: AmeSecurities Research - 5 May 2015
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