We maintain BUY on Westports, with our DCF-derived FV unchanged at MYR3.23. While its near-term share price catalyst is the impending tariff hike,  we  consider  that the  impact of the hike on  earnings  may be  less then  we earlier thought. We expect the company’s throughput levels to easily  meet  our  projection,  which  is  deemed  conservative.  The  stock offers attractive dividend yields of 4%.

• Encouraging  throughput  numbers.  Westports  achieved  a  total throughput  volume of 2.1m container boxes (+11% q-o-q, +11% y-o-y) in 2Q14,  which  brought  its  total  YTD  throughput  volume  to  4m  in  1H14 (+11%)  –  accounting  for  50%  of  our  2014  estimate.  On  such encouraging  numbers,  management  appeared  to  be  more  optimistic about its  FY14  throughput growth outlook, and hinted that the range of estimated  throughput  growth  could  be  revised  to  6-12%  (from  5-9%). Note that we only factored in a throughput growth of 6.5% for FY14.
• Tariff hike. The upside to its topline from the impending tariff hike, if any, may  not  be  as  much  as  we  earlier  anticipated  due  to  the  discount rebates on tariffs  the company  gave to  its  key customers.  Any increasewill  likely only impact its smaller customers.  Note that its three biggest customers  –  CMA  CGM,  United  Arab  Shiping  Company  and  China Shipping Container Lines (2866 HK, NR) –  account  for  c.56% of its  total throughput. Assuming that only  a conservative  10% of total throughput would be affected by the tariff hike (of which  we assume  an increase of10%),  we estimate  revenue and  earnings  to increase by  approximately MYR12m  (+0.77%)  and  MYR9m  (+1.8%)  respectively  in  FY15.  Thiswould  effectively  boost our DCF-based FV by  6  sen to MYR3.29 (from MYR3.23).   Currently, Westports’ application to increase its tariff  rates is at  the  proposal  stage,  and  no  indicative  timeline  on  its  progress  has been given. If it is given the green light to raise its tariff rates, the hike could come into effect as early as FY15.
• Business  as  usual,  even  after  the  P3  alliance  was  shelved. With  theCT7  terminal  expected  to  commence  operations  by  end-3Q14,  port congestion  is expected to  ease  further  –  which  could lead to  improving operating efficiencies and margins.
• Maintain BUY,  with our DCF-derived FV still  at MYR3.23. It  is trading at 18.7x FY15 P/E, or a 4% premium to its peers, which is justifiable as it is the only listed major transshipment port operator in Asean. 

Source: RHB