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This article first appeared in The Edge Financial Daily on August 14, 2018

Westports Holdings Bhd
(Aug 13, RM3.62)
Downgrade to hold with a target price (TP) of RM4.01:
Westports Holdings Bhd announced that the Port Klang Authority (PKA) had deferred the impending container tariff revision by six months to March 1, 2019 instead of Sept 1, 2018. On average, tariffs were slated for a 13% increase. Aside from the previous tariff hike of a similar quantum in November 2015, the last revision stretched back to 2001. Transport Minister Anthony Loke Siew Fook’s rationale for the deferment was to allow port users and other industry players to adapt and stabilise their businesses following the implementation of the sales and services tax come September 2018.

We are mildly taken aback by the deferment as we had expected an implementation according to the initial timeline. Although the official tariffs are raised on average by 13% for both gateway and trans-shipment cargo, only the higher gateway tariffs will be enjoyed by Westports in reality. Contracts for trans-shipment cargo are negotiated directly with the shipping liners and are market-driven by regional competing ports. We revise our gateway cargo tariffs following the delay in tariff revision. Aside from that, we take the opportunity to dial back our cargo volume assumption, which was previously too optimistic. It subsequently lowers our financial year ending Dec 31, 2018 (FY18), FY19 and FY20 earnings estimates by -7.3/-7.7/-4.8% respectively.

We downgrade our recommendation on Westports to “hold” from “buy” following the impressive surge in its share price over the past one year and three months. After trimming our earnings forecasts, we derive a lower discounted cash flow-based TP of RM4.01 (RM4.10 previously) despite rolling over our valuations to FY19. We believe Westports’ valuation, which is trading at its historical price-earnings mean, is fairly reflective of its prospects ahead. The feasibility study on Westports 2 emerging by late 2018 should draw interest, but it may be dampened by lingering concerns over global trade. Key downside risks include lower export growth and higher fuel costs. Upside risks include hostility over the unwinding of global trade and robust trans-shipment volume growth. — Affin Hwang Capital, Aug 13

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