News

• Westports announced that it has received an Approval-in- Principle from the Government of Malaysia to expand its container terminal facilities from CT10 to CT19, which is an extension from current CT1 to CT9.
• The company will now commence and undertake the various studies required before finalising the terms and conditions with Government of Malaysia. Financial Impact
• Neutral announcement to the group as the details of the expansion has yet to be finalized, which makes the feasibility of the expansion uncertain at this juncture.
• The expansion is expected to bring its current annual container handling capacity from 15m TEUs (after including CT9) to 30m TEUs.
• We are still unsure of the need for the group to expand its capacity to the level mentioned as the talk of a 3rd port in Klang is gaining traction.
• MMC port, Sime Darby and Adani Ports have signed MOU on 3rd April 2017 to study the feasibility of a greenfield port at Pulau Carey, which is near to where Westports operates.
• The finalization of the project may potentially post a threat to Westports’s expansion plans due to overcapacity of container port handling in Port Klang.

Pros/Cons

• The approval for further expansion has provided the group more growth opportunity in the long run albeit the need for expansion is still uncertain as this juncture.
• Sustained CAPEX spent on expansion will sustain its tax incentives recognition, and continue to boost its profits.
• 2H17 overall container volume is expected be weaker compared to 1H17 as full impact from alliance reorganisation set in.
• Overall expectation guided on container volume YoY decline is between 7% and 12% for 2017. This is broadly in line with our container throughput assumption of a drop of 9.9% YoY.

Risks

• Project execution risk.
• Pipe coating contract margin risk.

Forecasts

• Earnings forecast maintained.

Rating

HOLD (↔)

• 2017 is a year of consolidation for the group as the overall shipping alliances’ movement is unfavourable for the group on a net basis. We believe the group would return to its growth path in 2018 gradually as the changes in container volume takes its course fully.

Valuation

• We maintain our HOLD call with TP maintained at RM3.83 based on DCFE valuation.

Source: Hong Leong Investment Bank Research - 28 Aug 2017