Highlights

• In filing dated the 20 th of December 2017, Westports announced that it had received several bills of demands dated 17 th July and 29 th September 2017 totalling RM59.5m from the Royal Malaysian Customs (RMC).

• The demands pertain to (1) time barred assessments for 2008-2011 (2) import duty remittance for purchase of equipment and (3) GST for purchases made after April 2015.

• Westports has engaged both the RMC and the Ministry of Finance regarding the matter but has since received an unfavourable decision on the bills of demands on the 19 th of December.

• Although this is a one off, we are negative on the announcement as we can expect a provision to be made to account for these demands, which may subsequently impact FY18 earnings. To note the amount served accounts for c.11% of our FY18 net profit forecast.

• Our understanding is that unlike the brewers who have contested the full amount of similar bills of demands from the RMC, management are in ongoing engagement with the RMC and will look to reach an amicable settlement for the bill by 1HFY18.

Financial Impact

• As at 9M17 Westports has a cash balance of RM429m and net gearing of 0.47x, as such we expect the company to be able to satisfy this liability with relative ease. Assuming the full amount of RM59.5 is to be satisfied, net gearing will inch marginally to 0.49x.

Risks

• Container trade volatility.

• Postponement of tariff hike.

Forecasts

• Unchanged pending settlement of the bills of demand.

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 2019 gradually as the gateway volume continues to grow while its transhipment volume would resume growth when its reshuffled alliances grow.

Valuation

• We maintain our HOLD call and TP of RM3.47 based on DCFE valuation.

Source: Hong Leong Investment Bank Research - 21 Dec 2017