Highlights

• We hosted lunch meeting with CEO of Westports Holdings, Ruben Gnanalingam Abdullah, to get some update on its latest development and it was attended by 15 institutional fund managers and analysts.

• Tari ff hike has been postponed again to 1st November (from 1st September initially) as per decision by Port Klang Authority. We had in our report on 7th August assume that Westports need at least a month to give its clients a notice before it can implement the new tariff hike.
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• Slowdown in China economy has contribute to slower pace in container growth by Intra-Asia trade line, shrinking from +12.9% in 1H14 to only +8% in 1H15. In addition, contribution from Asia-Africa trade line has entered into negative territory of -19% in 1H15 vs. +16.2% in 1H14.

• However, management remain unperturbed as 1H15 container volumes already grow by +10%, still within their targeted annual growth between 5-10%. As such, we maintain our throughput growth projection of 8.5% in FY15.

• Asked whether recent development in regional ports will create intense competition, management shared that each port has their preferred shipping liners while O3 alliance is expected to further strengthen their hub at Westports.

• Impact on depreciating ringgit against the greenback is more apparent in purchasing cranes and equipment because they are bought in USD terms.

Risks

• Container trade volatility.
• Stiff completion from regional ports.

Forecasts

• We tweak our forecast as we think that new tari ff hike will kick-in in FY16 onwards (previously we assumed in Oct FY15). This would lead to dilution in FY15 EPS by 2%.

Rating

• BU BUY ; TP: RM5.26

Positives

• Expansion plan to drive earnings growth; extension of ITA for CT8 & CT9; and new tariff hike.

Negatives

• Mergers of shipping liners; and development of 3rd port in Port Klang.

Valuation

• We continue to like Westports’ business model of long-term sustainable, recurring and yet growing income. Hence we maintain our BUY call but our TP lowered to RM5.26 based on DCFE (from RM5.35) after we change our assumption on tariff hike.

Source: Hong Leong Investment Bank Research - 25 Sep 2015