Newsbreak /Comments

• Reuters reported that French container shipping firm CMA CGM plans to delist Neptune Orient Lines (NOL) following its purchase of 78% stake of the Singaporean shipper from Temasek Holdings last year.

• Following a deal with Singapore container terminal operator PSA, which is 100% owned by Temasek, the vice-chairman of CMA CGM said shipping traffic will be moved from Malaysia to a new terminal in Singapore.

• We are negative on this news as a shipping t raffic rationalization by CMA CGM post acquisition of NOL will have negati ve impact on Wesports’ shippi ng volume. To note, CMA CGM contri buted 30% to Westports’ cargo handling of 9.1m TEUs last year.

• Nevertheless, management of Westports has indicated that the establishment of Ocean Alliance by April 2017, which CMA CGM is a member, will likely to deploy dual hub strategy in Southeast Asia, hence retaining bulk of the volume lost due to the corporate development at CMA CGM.

• We also opine that CMA CGM will embark on route reorganization rather than moving out enti rely from Westports to minimize service disruption and optimize cost efficiency of its global shipping business.

Risks

• Stiff completion from regional ports.

• Container trade volatility.

• Slowdown in global trade.

Forecasts

• Unchanged, pending further clari fication from management on the details and timeline of CMA CGM decision.

Rating

• BUY

• Positives – 1) Extension of ITA for CT8 and CT9; 2) Scheduled tari ff hike; and 3) TPPA beneficiary of higher trade activities.

• Negatives – 1) Extension consolidation of shipping liners; and 2) Development of 3rd port in Port Klang.

Valuation

• We maintain our BUY call with unchanged TP of RM4.80 based on DCFE valuation. We continue to lik e Westports’ business model of long-term sustainable, recurring and yet growing income.

Source: Hong Leong Investment Bank Research - 14 Jun 2016