We visited Port Klang for a tour of Northport and Westports. Cargo throughput especially for transhipment cargo at Port Klang was affected by the consolidation of the shipping industry and shift in shipping alliances. Nevertheless, Northport is pursuing long-term plans to expand port capacity and industrial development on Carey Island and Westports plans to double its capacity by expanding its container terminal facilities (CT10-19). We reiterate our HOLD call on Westports as competition remains stiff with DCF-based TP of RM3.95.

Cargo Shift to Singapore

Westports was affected by Hapag-Lloyd and CMA’s shift in transhipment cargo handling to Port of Singapore. As a result, transhipment cargo handling volume fell 13% yoy to 4.76m TEUs in 9M17. Overall container handling volume declined 8% yoy to 6.8m TEUs, the decline was partly offset by gateway volume growing 8% yoy to 2.04m TEUs in 9M17. We gather that volumes could remain weak in 1H18 as the impact of the shift in transhipment cargo handling by some of its major customers continue to be felt. We expect a recovery in volume growth in 2H18.

Carey Island Plan Pending Approval

We gather that MMC Corp plans to team up with Sime Darby Plantation (land owner) and Sime Darby Property (developer) to develop Carey Island into a mixed development project with an industrial and logistics park and a fully-automated port with potential cargo handling capacity of 30m t p.a. The 3-phase development could be over 30 years. With total area of 100 sq km, Carey Island provides the hinterland to support the development of a new port, which could start in 2021 and be commissioned in 2025. The development of the port could involve foreign partners. These plans are still at a preliminary stage and is pending the approval of the government.

Maintain HOLD

Current FY18E PER of 23x is not attractive, considering that we only expect an earnings recovery back to FY16 level in FY19E. If the development of Carey Island goes ahead, there is also the concern of heightened competition in the long run. We reiterate our HOLD call with a 12M DCF-based TP of RM3.95, potential upside of 6%. Key upside/downside risks include (i) higher/lower exports resulting in higher/lower gateway volume and (ii) lower/higher fuel costs.

Source: Affin Hwang Research - 26 Dec 2017