The  P3  alliance  received  approval  from  US  regulators  last  Friday,  but we  think  that  getting  the  same  from  Europe  and  China  may  be  more challenging  since  the  alliance  will  exceed  the  30%  market  share threshold stipulated by anti-competition laws. If approved, management guided that impact on Westports (WPRTS) will be minimal as only 100k-200k  TEUs  of  the  port’s  estimated  7.8m  volume  for  FY14  will  be affected. Maintain BUY, with FV of MYR2.91 unchanged.

Clearing  the  first  hurdle.  Last  Friday,  the  US  Federal  Maritime Commission gave approval to the P3 alliance. It now has to get the nod from regulators from Europe and China, which are currently making their assessment. The US’ approval will allow the alliance to operate only on routes  to  and  from  the  US.  According  to  industry  analysts,  the  P3 alliance  will  dominate more than  40%  of  Asia-Europe and trans-Atlantic (Europe-US)  trade,  and  24%  of  the  trans-Pacific  (Asia-US)  market.  We think  obtaining  approvals  from  Europe  and  China  would  be  more challenging  since  the  alliance  will  exceed  the  30%  market  share threshold stipulated under European Commission anti-competition laws.

Minimal  impact  on  P3  alliance.  Westport’s  management  said  that CMA,  its major customer, has  indicated  that  the  number of boxes  to  be diverted to Port of Tanjung Pelepas as a result of the P3 alliance would be about 100k TEUs in FY14 and 200k TEUs  for FY15. This is minimal vs Westports’ handling volume of 7.8m TEUs estimated for FY14. CMA also intends to offset the diverted cargo by expanding into non-P3 trade lanes  such  as  the  upcoming  Asia-Middle  East  link,  which  is  due  to commence  on  8  May.  This  will  involve  vessel  sharing  agreements  with Westports’  key  customers  such  as  United  Arab  Shipping  Company (UASC)  and  China  Shipping  Container  Lines  (CSCL).  Its  second  and third  largest  clients  are  also  looking  to  expand  their  services  in  light  of the  recovery  in  global  trade.  Management  is  targeting  growth  of  high single-digit  vs  our  conservative  forecast  of  4%,  incorporating  the assumption that the P3 alliance will commence by mid-2014.

Maintain BUY. We maintain BUY on Wesports, with a DCF-derived FV of  MYR2.91,  based  on  WACC  of  7.12%.  The  stock  offers  a  decent dividend yield of 4.3%.

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Source: RHB