Westports announced the proposed acquisition of a piece of 99-year leasehold land under the sea of 16.6m sqft for a total of RM116.2m (RM7 psf). The purchase consideration will be settled through 5 equal payments done entirely in cash, funded by bank borrowings and internally generated funds. The purpose of this acquisition is for the terminal expansion of CT10 to 19. Management has noted that one more land acquisition will be required for the terminal expansion. Net gearing is expected to increase to 0.61x from 0.56x on a proforma basis. Our forecast is unchanged and we maintain our HOLD rating with RM3.30 TP (WACC: 8%).

NEWSBREAK

Westports announced the proposed acquisition of a piece of leasehold land under the sea with the size of 381 acres (16.6m sqft) for a total cash purchase consideration of RM116.2m (RM7psf). The land is located under the sea at Pulau Indah adjacent to Westports and is on a residential title with a 99-year leasehold tenure of the land. The purchase consideration of RM116.2m will be settled through 5 equal payments (RM23.2m each) on 2 May 2018, 2 Jul 2018, 2 Sep 2018, 2 Nov 2018 and 2 Jan 2019. The settlement will be funded by bank borrowings and internal funds.

HLIB’s VIEW

Neutral on the news. We are neutral on the news as the proposed acquisition will be used for the terminal expansion (CT10 to 19) as the current preliminary port design would require additional land acreage to accommodate new container yard space and wharf in order to facilitate the effective operations of the new container terminals.

Impact to net gearing. As at 1QFY18, Westports had a net gearing of 0.56x and a net debt position at RM1193.4m. Our pro-forma calculation implies that net gearing would increase to 0.61x post acquisition.

One more to go. This acquisition is just part of its long term expansion plan for CT10- 19 which will cost up to RM10bn as guided by management. Management has also noted that the expansion would require a total of two land acquisitions. However, details on the second acquisition are not known at this juncture.

Forecast. Unchanged as we expect the construction of CT10-19 will likely only take place in 2030 based on our throughput growth assumptions.

Maintain HOLD, unchanged TP: RM3.30 based on DCFE (WACC: 8.0%),

Source: Hong Leong Investment Bank Research - 2 May 2018