This article first appeared in The Edge Malaysia Weekly on February 5, 2018 - February 11, 2018
THE negative impact of the changes in container shipping alliances on Westports Holdings Bhd’s container throughput should fade by July, with the port operator expecting to see growth returning in the second half.
Westports is expecting container volume to grow at a low single-digit rate of between 2% and 3% this year. However, some analysts are optimistic that container throughput at Westports could grow as much as 5.2% this year.
“Our more upbeat view hinges on continued strength in Malaysian’s external trade that is estimated to grow 9.3% year on year, according to MIDF Research’s economics unit, and growth in global trade of 3.7% year on year in FY2018, according the International Monetary Fund.
“Hence, we are revising upwards our earnings forecasts for FY2018 to RM554.9 million (previously RM553.2 million),” says MIDF Research analyst Adam Mohamed Rahim in a Jan 4 research note on Westports.
According to Westports group managing director Ruben Gnanalingam, the year will be divided into two halves, with the first being the final period of volume correction due to the shifting of transhipment boxes from CMA CGM SA and Hapag-Lloyd.
“When the Ocean Alliance announced its services in 2016 and announced its dual hub strategy with Singapore as its primary hub, we forecast that the correction would take place over the next 15 months,” Ruben tells The Edge in an exclusive interview.
He says container volume in the first quarter will still be lower year on year, owing to the high base effect of the previous corresponding period, as Ocean 3 was still using Westports as its primary hub in the region then.
However, going into the second quarter, volume will be about the same as the previous corresponding period, which would mean still-negative container volume growth for Westports in the first half.
From July onwards, container volume will start to grow, supported by the continued increase in the volume of local containers as Malaysia’s external trade growth is expected to continue to be strong this year.
Most research firms covering Westports have assigned a “hold” call to it, with target prices ranging from RM3.14 to RM4.14 per share. The average target price is RM3.75 per share.
Based on last Friday’s closing price of RM3.49, there is a potential upside of 7.45% for Westports’ shares over the next 12 months. CIMB Research’s Raymond Yap has the highest fair value of RM4.14 a share.
Over the last 12 months, Westports’ share price has dropped 12.8% from RM4. At the current price of RM3.49, the stock is trading at a price-earnings ratio of 19.5 times, based on an estimated earnings per share of 17.9 sen, according to Bloomberg.
As at Sept 30, 2017, Westports had a net gearing ratio of 0.6 times. Its net assets stood at RM4.23 billion while its total liabilities amounted to RM2.59 billion. It had cash and cash equivalents of RM428.65 million.
“We believe FY2017 will serve as a new base moving forward, with expected mild growth in FY2018 and beyond, premised on continued growth in gateway on the back of our expanding economy, and slight recovery in transhipment,” says Kenanga Investment Bank Bhd analyst Steven Chan in a Jan 4 research note.
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