MoT announced the postponement of the second phase of tariff hike from 1st Sept 2018 to 1st Mar 2019. We are neutral on the short term deferment of the tariff hike as we believe the impact on the bottom-line will be minimal. This is because the deferment in tariff hike will mainly affect Gateway revenue and have minimal impact towards Transhipment revenue. Gateway throughput volume comprises c.35% of Container throughput volume while Transhipment throughput volume comprises c.65%. We cut earnings forecast by FY18: 1.5% and FY19: 2.6% respectively. Maintain HOLD, higher TP: RM3.49 (from RM3.30). Despite cutting earnings, we have raised our TP as we roll forward our valuation to FY19.

NEWSBREAK

The Minister of Transport, YB Loke Siew Fook, announced that the second phase of the increase of 15% in Port Klang’s container tariff which would to be implemented on 1st September 2018 will be deferred to 1st March 2019. The deferment is to give time for port users and other industry players to adapt and stabilize businesses to the soon-to-be implemented Sales and Services Tax effective 1st September 2018.

HLIB’s VIEW

Neutral on the news. We are neutral on the short term deferment of the tariff hike as we believe the impact on the bottom-line will be minimal. This is because the deferment in tariff hike will mainly affect Gateway revenue and have minimal impact towards Transhipment revenue. Gateway throughput volume comprises c.35% of Container throughput volume while Transhipment throughput volume comprises c.65%. Furthermore, the effect is spread equally between FY18 and FY19.

Outlook. For FY18, we expect overall throughput growth to be muted as the growth in gateway throughput will be offset by the decline in Transhipment throughput due to full year impact of global shipping alliance realignment exercises. For FY19, we expect overall throughput growth to pick up again on the backdrop of the global economy growth.

Forecast. We cut FY18 and FY19 earnings forecast by 1.5% and 2.6% respectively to take into account slightly lower contribution from Gateway segment.

Maintain HOLD, higher TP: RM3.49. Despite cutting earnings, we have raised our TP: RM3.49 (from RM3.30) based on DCFE (WACC: 8.0%) as we roll forward our valuation to FY19.

Source: Hong Leong Investment Bank Research - 13 Aug 2018