BUY, with an unchanged DCF TP of MYR4.77 (16% upside). Westports’ profit could drop by 6% YoY, assuming no growth in transhipment volumes in FY17, if CMA moves container transhipments from Port Klang to Singapore following its acquisition of Neptune. Still, Westports’price competitiveness would be hard to ignore and we believe the port may remain a key part of its “dual hub” plan.
CMA CGM to acquire NOL. CMA CGM (CMA) has announced a preconditional (ie requires approval from antitrust authorities) voluntary general cash offer for Neptune Orient Lines (Neptune) (NOL SP, NR) at a price of SGD1.30 per share. The transaction has support from Neptune’s majority shareholders and is expected to be completed by Aug 2016.
CMA’s commitment to use Singapore as a key hub. Post-acquisition, CMA plans to use Singapore as a key hub in Asia and has committed to bring more volume to its port, PSA. While this seems like a risk for Westports’ operations, for whom CMA is one of its largest customers, we believe CMA could adopt a dual-hub model. CMA could consolidate its Asia-Europe transhipments at Westports, while using Singapore for its trans-Pacific routes, where Neptune has a strong presence.
Westports’ cost advantage is hard to ignore. The cost of handling a transhipment container at Westports is c.53% lower than PSA in USD terms (see Figure 3). While an appreciation in MYR against USD might chip away some advantage, we expect Westports to remain a lower-cost transhipment port compared to PSA.
Assessing the downside risk. While details of the “dual hub” conceptare difficult to visualise, we assess the likely downside from the movement of some volumes from Westports to PSA. Compared with our assumption of 5% transhipment volume growth in FY17, a zero growth scenario would cut Westports’ profit by 6%, while a 5% decline in volumewould decrease its profit by 9%.
Maintain BUY. Our DCF-based MYR4.77 TP implies 16x 2016 EV/EBITDA, which is at a c.11% premium to regional peers. Westports deserves to trade at a premium, given its higher-than-peers ROE, EBITDA margins and scarcity value in ASEAN region. It is also part of the Shariah-compliant index.
Source: RHB Research - 10 Dec 2015
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WPRTSCreated by kiasutrader | Jun 14, 2016
Created by kiasutrader | May 05, 2016