This article first appeared in Corporate, The Edge Malaysia Weekly, on June 13 - 19, 2016.
LAST week, many shipping players were engaged in a heated debate on whether French shipping line CMA CGM SA would be shifting its Southeast Asian base from Westports Holdings Bhd’s terminal in Port Klang to that of the Port of Singapore Authority (PSA) in the city state.
Some shipping publications coming out of Singapore certainly appeared to believe this.
The shift from Westports, it seems, is the result of the French company buying state-controlled Temasek Holdings Pte Ltd’s 67% stake in Neptune Orient Lines Ltd (NOL) at S$1.30 a share in a S$3.4 billion (RM10.21 billion) deal. It is noteworthy that Temasek also controls PSA.
The Singaporean government is known to be keen to ensure that the container volumes of NOL’s container shipping outfit, American President Lines Ltd, remain in Singapore.
Some of the publications speculate that CMA CGM and PSA plan to form a 49:51 joint venture, which will lease as many as four berths with a collective annual capacity of three million TEUs (20-foot equivalent units) from PSA, and thus shift out of Westports. One online publication went as far as to say that PSA officials it had contacted had confirmed the JV.
However, CMA CGM merely stated on its website last Friday that it had acquired as much as 78.07% equity interest in NOL. The only indication of a possible shift came from Temasek’s joint head of portfolio management group, Tan Chong Lee, who said, “Their (NOL’s and CMA CGM’s) complementary strengths will yield mutually beneficial results. We also note and welcome the commitment of CMA CGM to enhance Singapore’s position as a key maritime hub and grow Singapore’s container throughput volumes.”
It is worth noting that some of the largest global container ship operators, including CMA CGM, China’s Cosco Group and China Shipping Group, have agreed to form a new shipping alliance — the Ocean Alliance — which could eventually include Hong Kong’s Orient Overseas Container Line Ltd and Taipei-based Evergreen Marine Corp. According to news reports, their collective total volume stands at 15 million containers.
Last year, Westports handled 9.05 million TEUs and CMA CGM accounted for about a third of that, or almost three million TEUs. This means that CMA CGM’s shift to Singapore could significantly impact the Malaysian company.
Westports CEO Ruben Emir Gnanalingam was abroad at the time of writing and could not be reached for comment.
Port officials from Port Klang, however, brushed aside the CMA CGM-PSA JV. “Westports’ [container handling] rates are much lower than those at PSA and efficiency-wise, Westports is among the most efficient in the world … I don’t believe that in this damp economic climate, CMA CGM will shift,” says one official, who declined to be named.
He, however, does not discount the possibility of Singapore offering preferential tariffs to CMA CGM and its alliance partners, but reiterated that Malaysian ports are considerably cheaper and Westports is more efficient than its Singaporean counterparts.
Port Klang is made up of Westports and Northport. Northport is owned by Northport (M) Bhd that, in turn, is controlled by NCB Holdings Bhd. NCB comes under the MMC Corp Bhd umbrella.
Port Klang’s handling charges for transhipment and import or export boxes are RM160 and RM265 per TEU respectively, while PSA’s rates have never been disclosed.
In a report titled “Minimal risk from new PSA-CMA CGM JV”, a shipping analyst from CIMB Investment Bank Bhd says PSA’s move to sign a terminal JV with CMA CGM is a “defensive move to protect whatever transhipment cargoes are still being handled in Singapore, rather than an aggressive move to wrest back transhipment volumes from Westports”.
For the first three months of FY2016, Westports registered a net profit of RM171.08 million on sales of RM464.71 million. Compared with the previous corresponding period, its net profit was up 42.34% while revenue increased 16.55%.
CIMB forecasts that Westports will report a net profit of RM601 million on revenue of almost RM2 billion for the current financial year, which would indicate a 19% gain in both net profit and revenue from FY2015.
The research house has a “hold” call on the counter and a target price of RM4.45, which is a 2.53% premium to its close of RM4.34 last Friday.
Westports’ share price has not been affected by the recent uncertainty over CMA CGM’s choice of hub. Since mid-January this year, the stock has gained more than 16% despite the bleak market conditions. Over the same period, the benchmark FBM KLCI has been largely flat.
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