Highlights

• We recently organized a visit to have a better understanding about ports in the southern part of Malaysia. Frost and Sulli van also gave an overview and outlook of Mal aysia’s ports prospects.

• Port industry is expected to have sustainable growth mainly driven by:

• Strong growth in Intra-Asia trade;

• Strong focus in port devel opments under Mal aysia’s Logistic Masterplan;

• Strategic advantage derived from geographical location; and

• Free Trade Agreements with key regional economies and as part of ASEAN.

• Frost & Sullivan estimated that total cargo volume by sea t o grow at a CAGR of 5.8% from 2012 to 2017, reaching 574m tonnes by 2015.

• The IMF forecast that global trade volume to increase by 3.7% this year on the back of continued recovery in the advanced economies. For 2016, global trade volume growth is expected to pick up slightly to 4.7%, dri ven by stabilization in China’s growth amid better outlook for the US economy.

• Container volume at Port of Tanjung Pelepas (PTP) is expected to grow by +9.4% from 8.5m to 9.3m TEUs 2015. We understand that their initial master plan for capacity expansion needs to be revised following development of Country Garden project.

• PTP is a prime beneficiary of ‘ Daily Mearsk’ program and also 2M Alliance (Mearsk & MSC), which has contributed to container volume positively. On a di fferent note, we gathered that PTP is in the midst of applying for its inaugural tariff hike.

• As a multi-purpose port, Johor Port is aggressive on expansion plan by doubling its capacity from 40m to 80m tonnes in the next five years.

• Johor Port is world’s largest palm oil / edible oil terminal, one of the biggest discharging points of rice and coca in Malaysia; biggest terminal in Malaysia for fertilizer and cement; and one of the preferred port in the region for Offshore Inspection, Maintenance and Repair (OIMR) activities.

Catalysts

• Strategic advantage at Straits of Malacca.

• Strong cash flow and dividend payout ratio.

Risks

• Container trade volatility.
• Slump in oil prices.
• Appreciation of USD (impact on capex).

Picks

• Among the listed port operators, we think that Westports is the best proxy to the industry’s sustainable growth. This because Port Klang control 50% market share in Malaysia’s container throughput and Westports commands 76% market share in Port Klang.

Source: Hong Leong Investment Bank Research - 6 Oct 2015