KUALA LUMPUR (July 2): Sime Darby Property Bhd and MMC Corp Bhd’s RM200 billion Pulau Carey port project is unlikely to proceed, given the Pakatan Harapan government’s austerity drive and review of mega projects, said CIMB Research analyst Raymond Yap.
“That is my view because Westports Holdings Bhd’s port has lots of capacity, so there is in no need for a greenfield project, and it has not started yet,” Yap told theedgemarkets.com.
In April last year, MMC’s unit MMC Port Holdings Sdn Bhd, and Sime Darby Property, signed a Memorandum of Understanding (MoU) with India’s largest private port operator Adani Ports, and Special Economic Zone Ltd (APSEZ), to study the feasibility of developing an integrated maritime city on the island off the coast of Selangor.
The project’s viability came into question after the previous government gave Westports the greenlight to carry out its RM800 million expansion project, dubbed Westports 2 (W2).
In a research note today, Yap opined the Pakatan government would support W2 as it is viable, bankable and of national importance.
The W2 project is currently undergoing technical studies, after which Westports will try to conclude a concession agreement with the government by financial year ending Dec 31, 2019 (FY19), and then commence the land reclamation by FY20.
CIMB Research expects the first Container Terminal 10 (CT10) of W2 to be commissioned in FY23, and the last, CT19, by FY43, for a total capital expenditure of RM14 billion, against Westports’ RM10 billion to RM15 billion guidance.
“We have modelled in Investment Tax Allowances and a 50-year concession lasting until FY69,” Yap wrote.
He pointed out that W2 capex will be fully funded by Westports, with 70% funded via the issue of sukuk notes, and 30% equity funding via its internal cashflows and the issue of perpetual securities.
“We do not expect any rights issue, as the gradual rollout of W2 will not tax Westports’ balance sheet,” Yap added.
He said Westports’ gateway volumes rose 26% year-on-year (yoy) in the first quarter of March 31, 2018 (1QFY18), after growing 10% in FY17, as growth picked up from mid-2017 onwards.
“Gateway volumes in the first half of 2017 (1H17) only rose 5% yoy, but the growth rate improved to 15% yoy in the 2H17, which likely spilt over into the 1H18.
“While the gateway volume expansion may slow in 2H18 due to the higher base effect, FY18 growth may exceed our current modest forecast of only 5% yoy. Hence, both our and consensus FY18 core earnings per share (EPS) forecasts have upside risk,” he added.
Westports’ transshipment volumes fell 16% yoy in FY17 and fell 19% yoy in 1Q18, after the new container shipping alliances took effect on April 1, 2017, Yap noted.
“The port company lost transshipment volumes from CMA CGM SA, when it moved one million twenty-foot equivalent units per annum to Singapore, after it acquired Singapore’s Neptune Orient Lines Ltd, and from United Arab Shipping Co when it was acquired by Hapag-Lloyd AG.
“The negative yoy effect is likely to dissipate from the second quarter of this year and return to positive yoy growth in the 2H18, aided by shipping group THE Alliance’s plan to add two ports of call per week,” he said, while forecasting Westports’ transshipment volume to grow 1% this year.
THE Alliance member carriers are Hapag-Lloyd, Ocean Network Express and Yang Ming.
Moving forward, the zerorisation of goods and services tax, and the stabilisation of retail pump prices for motor gasoline and diesel, may have a positive impact on consumer purchasing power, which could help lift Westports’ import volumes.
He also said there is little risk of lower East Coast Rail Link (ECRL)-related project cargo imports since the government will continue with the ECRL project.
At closing, Westports shares rose 14 sen or 4.13% to RM3.53, for a market capitalisation of RM12.10 billion.