• Westports announced that it has signed the third Supplemental Agreement (SA) with the Government and PKA, extending the concession until 2082. This encompasses both the existing and new facilities of Westport 2 (WP2).

• The company expects to spend RM6.3bn for initial capex of Phase 1 development of WP2. It expects to fund the expansion plan via issuance of RM5.0bn Wakalah Shariah Sukuk Programme and internally generated fund.

• We are positive with this as it will strengthen Westports competitive position through increased capacity and enhanced operational efficiency as well as providing long term earnings growth visibility.

• Maintain a BUY call on Westports’, with a DDM derived TP of RM3.95 (Ke: 7%, TG: 2%).

Signed Third SA with the Malaysia Government

Westports announced that it has signed the 3rd SA with the Government of Malaysia and the Port Klang Authority (PKA) to facilitate the development of container terminal (CT) at WP2 as well as to extend the concession period for all existing concession areas beyond initial expiry of 31st Aug 2024. Following this, the concession period will be extended until 31st Aug 2070 including for CT10-CT13. Further extension until 31st Aug 2082 will be granted subject to the fulfillment of two conditions: (i) the acquisition of the third underwater land from the Selangor State Government and transfer to PKA by 31st August 2045, and (ii) the development of CT14-CT17.

Detail of WP2 Expansion Plan

The development of WP2 will be divided into 2 phases. The Phase 1 encompasses the development of CT10-CT13 with preliminary works are slated to commence January 2024 and completion expected in 2038. It is also expected that CT10 will commence operations by 2H27 to be followed by CT11 in 2H29. Note that the extension of CT10-CT13 will begin from CT9, aligning with the existing Westports berths. Meanwhile, Phase 2 involves the development of CT14-CT17 from 2036 until 2053, and the extension will begin with the remaining berths bending southwards to maximize the distance between the main navigational Southern Access Channel (Selat Klang) and the berthing areas. Each phase will entail an initial development capex of RM6.3bn whereas total capex is estimated to be approximately RM39.6bn encompassing all replacement and maintenance expenses until 2082. Westports will issue Wakalah Sukuk Programme amounting to RM5.0 bn to fund the initial capex while the remaining will be funded through equity injection (i.e. via dividend reinvestment, share placement, or a strategic investor).

Our View

We are optimistic with the government’s approval for its WP2 expansion plan which will alleviate port congestion considering that the current usage has reached 80% of the capacity. Through the expansion plan, Westport envisions to almost double its capacity to 27 million TEUs from 14 million TEUs. However, we have not yet taken WP2 into our forecast due to its long gestation period. Hence, no adjustments were made to our FY24-25F earnings projections at this juncture.

Maintain BUY with TP of RM3.95

Maintain a BUY call on Westports’, with a DDM derived TP of RM3.95 (Ke: 7%, TG: 2%). We maintain a positive view on Westports due to: (i) long-term sustainable business model, (ii) proxy to rising consumption and industrialisation in greater Klang Vallley, and (iii) stable dividend payout of 75%.

Source: BIMB Securities Research - 11 Dec 2023