- Westports yesterday announced the implementation of Phase One of its upward revised container tariffs will now take effect from 1 Nov 2015 instead 1 Oct 2015.

- This is the second time the implementation of the container tariff hike has been delayed, pursuant to directives from the Port Klang Authority.

- No reason was given for the change. We believe it could be due to pressure from importers in view of the weak ringgit and weak domestic demand. While the impact will not be significant, it does not bode well for the port operator, as there is no guarantee that the implementation of the hike will not be delayed yet again.

- Notwithstanding that possibility, we continue to believe that the full-year impact will be felt in FY16. As such, we maintain our numbers for now.

- To be implemented in two phases, the first entails an average rise of ~15% on key tariff items, particularly terminal handling charges, from 1 Nov, and an another average increase of ~15% with effect from 1 Sept 2018.

- We maintain our FY15F and FY16F container throughput growth assumptions at 8% and 8.6%, respectively. We reiterate BUY, with an unchanged DCF-derived fair value of RM4.79/share (implied FY16F PE of 27x), given that:- (1) the full-year impact of the recent tariff hike will be realised in FY16F, leading to an EPS growth of 17%. (2) growth will continue to be facilitated by capacity expansion; CT8 will increase its capacity by 11% next year to 12.2mil TEUs and by another 11% to 13.5mil by mid-2017; (3) potential of lower taxes under a proposed 5-year investment tax allowance. A reduction to 18%, vis-à-vis the statutory corporate tax rate of 24%, would see an 8% rise in earnings for FY16F and FY17F; and (4) stable dividend payout, with 75% dividend policy and yield of ~3%.

Source: AmeSecurities Research - 23 Sep 2015