Approval-in-Principle for expansions. WPRTS had just received an Approval-in-Principle from the Government of Malaysia for the expansion of its container terminal facilities from CT10 to CT19, which is an extension from the current CT1 to CT9 development.

Handling capacity potentially up to 30m TEUs per year. The expansion until CT19 is said to potentially increase WPRTS’s total handling capacity up to 30m TEUs per year, representing more than double the current capacity, signalling the group’s long-term growth ambition to further strengthen itself as a main transhipment hub within the region.

Current expansions still in-line. We believe the expansion until CT19 is a longer-term prospect, with the group currently focusing on the expansion of Phase 1 of CT9, which is due to be completed by end of the year, and Phase 2 of CT8, which also just had its wharf completed in July 2017. The completion of these expansions is expected to bring annual handling capacity to around 13.5m TEUs (from 12m TEUs at end-last year), with the company earmarking a total capex of RM1b for these expansion plans. Meanwhile, we believe the approval for expansion up to CT19 provides more visibility towards the group’s longer-term expandability as volumes and capacity utilisation start picking up. In the meantime, however, we do not expect any further developments beyond CT9 for the next 2-3 years.

Maintain MARKET PERFORM, with unchanged DDM-derived TP of RM3.70. No changes were made to our FY17-18E numbers. Despite the longer-term expandability, current throughput outlook for WPRTS seems challenging at this juncture following the re-shuffling of global shipping alliances, with the company recorded a 5% decline YoY in container volumes for 1H17. Having said that, we opine that FY17 may serve as a new low base in which WPRTS could organically grow from, underpinned by: (i) expected growth from gateway volumes, and (ii) gradual recovery for transhipment throughput as post-reshuffling business environment stabilises.

Risks to our call include: (i) stronger-than-expected throughput volumes, and (ii) lower-than-expected operating and finance costs.

Source: Kenanga Research - 28 Aug 2017