INVESTMENT HIGHLIGHTS

• Successful in bid to buy land from PKNS
• Acquisition worth RM116.2m to be satisfied by cash
• Positive on the acquisition plan for terminal expansion
• No material impact on financial health
• Maintain BUY with unchanged TP of RM3.85 per share

Successful bid from PKNS. On 3 April 2018, Westports received a letter of offer from Perbadanan Kemajuan Negeri Selangor (PKNS) for the proposed acquisition of a piece of leasehold land under the sea in Pulau Indah with the size of 154.2ha or 381 acres. Westports has accepted the offer on 30 April 2018 and would execute the proposed acquisition for a total purchase consideration of RM116.2m.

Details of proposed acquisition. The proposed acquisition will be satisfied entirely by cash obtained from internally generated funds and bank borrowings. The payment for RM116.2m proposed acquisition will be made in five equal payments worth RM23.2m each with the earliest one to be paid by 2 May 2018 and the last on 2 January 2019.

Rationale of proposed acquisition. To recall, Westports received an Approval-in-Principle from the government to expand its container terminal facilities from CT10 to CT19 in August 2017. Therefore the proposed acquisition provides additional land acreage for new wharfs and container yard space to facilitate operations of CT10-CT19 in the future. The proposed land can only be utilised after reclamation is done. The first phase of reclamation works for CT10-CT12 is expected to begin in FY19 assuming that CT9 Phase 2 has been completed in FY18. Overall, the expansion plan could take place for the next 10 years.

Our view. We view the proposed acquisition to be positive as it signals some form of feasibility of the undergoing studies for the CT10-CT19 terminal expansion plans. With the payment for the proposed acquisition to be done in stages, we reckon that it will not have a material impact on Westports’ day-to-day operations and financial health as the company generated a net operating cash flow of RM54m in 1QFY18. Meanwhile as of 31 March 2018, Westports has a cash pile of RM306.6m and borrowings from its Sukuk Musharakah Medium Term Note (SMTN) programme worth RM1.5b which translates to a net debt-to-equity ratio of 0.56x.

Source: MIDF Research - 2 May 2018