It was reported in The Edge that WPRTS stands to lose its biggest customer, CMA CGM to Singapore’s PSA, while Alphaliner reported last week that PSA will sell a 49% stake in four berths to CMA CGM. We were relatively surprised and mildly negative on this news, but we do not expect WPRTS to lose CMA CGM altogether due to competitive edge, and we believe there will be more than sufficient volume for a dual hub, especially once the new OCEAN Alliance kicks in by April 2017. Hence, we maintain our earnings forecasts along with MARKET PERFORM rating and TP of RM4.27.

CMA CGM moving shipping traffic to PSA. It was reported in The Edge that Westports Holdings Berhad is poised to lose its biggest customer, French container shipping firm CMA CGM, which is planning to move its shipping traffic from Malaysia to Singapore (PSA) according to a report by the French Daily, Les Echos with CMA CGM’s vice chairman Rodolphe Saade, cited by Reuters. Additionally, it was also reported in Alphaliner last week that PSA Singapore Terminals will sell a 49% stake in four berths (JV terminal) to CMA CGM with a capacity of 3m TEU’s per year.

Will WPRTS lose volume? We were mildly surprised and viewed this news negatively should WPRTS lose CMA CGM altogether. However, we believe this may not be the case and it is too soon to sound the alarm. Although we do not discount the possibility that CMA CGM may move some of its transhipment volume to PSA as part of the JV, we believe that WPRTS is unlikely to see a significant decline in volume growth for a few reasons; (i) the JV terminal at PSA is only for 3m TEU’s while it is estimated that container volume at ports for CMA and APL combined is almost double that amount, encouraging a dual hub approach, (ii) the new OCEAN alliance set to launch in April-17 will have sufficient throughput volume that could be deployed to WPRTS, and (iii) WPRTS has a strong cost advantage as its tariffs are still one of the cheapest in the region. Additionally, CMA CGM’s vice chairman stated (as cited in the Reuters article) that the Group plan to cut USD1b in cost over 18-20 months; as such, it would make sense that CMA CGM maintains a fair portion of volumes at WPRTS (refer overleaf).

We maintain our already conservative 4.1-4.2% throughput growth estimates in FY16-17E, for now. We are expecting low single digit throughput growth of 4.1-4.2% to 9.42-9.82m TEU’s in FY16-17E. This is lower than the previous year’s growth rate (12%-8% in FY14-15) and 6.6% in 1Q16, but we are comfortable with our conservative growth forecast due to: (i) global economy slowdown, (ii) volatility in forex rates, and (iii) remaining uncertainties from new shipping alliances, which come into effect in April-17.

Maintain MARKET PERFORM and TP of RM4.27. Based on our FY16-17E earnings of RM643-684m, a 75% pay-out ratio implies 14.1-15.0 sen NDPS (3.3- 3.5% yields). We reiterate our MARKET PERFORM call and DDMderived Target Price of RM4.27 (discount rate of 6.0%) and an implied FY16E PER of 22.6x, which is trading at +0.5SD above its historical average. *Note that WPRTS’ historical average only consists of 2.7 years record as its IPO was in Oct-13.

Source: Kenanga Research - 15 Jun 2016