Westports has entered into agreement with Northport, to jointly acquire the entire 100% of Boustead Cruise Centre (BCC) from Boustead, for a total cash consideration of RM230m in a 50:50 ratio. Westports and Northport will acquire the company without assuming its existing liabilities and will jointly leverage on their expertise that could make use of BCC’s sea-fronting parcels of land. Our pro-forma calculation implies that net gearing would increase to 0.22x (from 0.18x in FY20) post acquisition. Maintain our forecast and BUY call with unchanged TP of RM4.95 based on DCFE with assumption of CoE: 7.4%.

NEWSBREAK

Westports has entered into agreement with Northport, to jointly acquire the entire 100% of Boustead Cruise Centre (BCC) from Boustead Holdings Berhad, for a total cash consideration of RM230m, payable by Westports and Northport in a 50:50 ratio.

BCC currently provides port facilities and services to cruise ships and navy vessels with its 69.8-acre facilities at Pulau Indah. In addition to the jetty used to accommodate cruise ships and navy vessels, BCC also owns two parcels of land with a 5-storey terminal building and a car park built thereon and another six parcels of adjacent land that has yet to be fully developed.

HLIB’s VIEW

Opportunity to explore other business activities. Although BCC has chalked in a widened loss of RM14.7m in FY19 (from RM3.8m in FY18), BCC owns c.58 acres of land that has yet to be fully developed. We believe Westports and Northport are eyeing this land as an opportunity for them to explore synergistic benefits to their existing port and logistic business. Furthermore, the losses registered by BCC were mainly dragged by the finance cost (RM17.7m in FY18; RM17.6m in FY19) payable to its parent-co, Boustead. BCC will capitalise its outstanding intercompany balances, and Westports & Northport will acquire the company without assuming its existing liabilities. As terminal operators, Westports and Northport will jointly leverage on their expertise and network to explore potential logistics or other complementary business activities that could make use of BCC’s sea-fronting parcels of land.

Acquisition price seems fair. The implied land cost is c.RM75 psf, which is within the average land price in that area (RM60-RM80 psf based on various property websites). The purchase consideration of the acquisition will be funded from the internally generated funds of Westports, of which the breakdown would be ascertained at a later date. Our pro-forma calculation implies that net gearing would increase marginally to 0.22x (from 0.18x in FY20) post acquisition.

Outlook. With the worst likely over, we reckon that Westports is poised to ride on the global trade recovery with the reopening of economies. Overall for FY21, we are forecasting 3% container growth, inline with management’s guidance of low-single digit growth (0-5%).

Forecast. Maintain forecast pending completion of acquisition.

Maintain BUY, with an unchanged TP of RM4.95 based on DCFE with assumption of CoE: 7.4%. Notwithstanding the headwinds from Covid-19, Westports has shown a steady growth in PATMI by 7% for FY20. As such, we continue to like Westports for its long-term sustainable business model, recurring and yet growing income from ongoing throughput growth at Port Klang, leveraging on its geographical advantages

Source: Hong Leong Investment Bank Research - 22 Mar 2021