This article first appeared in The Edge Malaysia Weekly on April 27, 2020 - May 3, 2020
WITH many countries across the globe locked down, with stay-at-home restrictions and the closure of practically all non-essential businesses, global trade has collapsed as demand and consumption crash and supply chains are severed.
As a bellwether of Malaysian trade numbers, the first-quarter performance of Westports Holdings Bhd will be closely scrutinised, particularly its container throughput.
“I can tell you that container throughput numbers in the first quarter are flat, with a negligible drop of less than 1%,” Westports CEO Datuk Ruben Emir Gnanalingam tells The Edge in an interview. “We will first feel the effects of the Covid-19 outbreak from April.”
He cautions that container throughput at the country’s busiest container terminal is projected to drop by up to 20% year on year in 2020 as the pandemic continues to wreak havoc on local and international consumption and supply chains.
Putrajaya instituted a Movement Control Order on March 18, but China — its largest trading partner — had already swung into action in late January.
How quickly the situation has changed for Westports. A few months ago, it was basking in its achievements as container throughput jumped 14% to 10.9 million 20-foot equivalent units (TEUs) last year, led by 16% growth in transshipment to 7.2 million TEUs. Growth in gateway containers was also a robust 10% to 3.6 million TEUs.
Because of the improved container throughput, Westports became the first Malaysian container terminal operator to handle more than 10 million TEUs in a year. Given the twin crises — health and economic — which have turned global trade on its head, Ruben expects to hit the 11 million TEU mark again only in 2022.
“Trade is a function of consumption. When people eat, there is trade. While the MCO will be lifted, I don’t think consumption will go back to what it was. How many people will buy a car? The percentage is going to be very low over the next one year.
“We do not handle a lot of cars, but if people are not buying cars, then demand for car parts and accessories will not be strong either.
“One of the factors is that a lot of people save money for a rainy day. This is the rainy day. When people use their savings during the rainy day, what will happen is that they will start saving for another rainy day,” he observes, in an allusion to the anticipated lack of near-term consumption growth.
After China locked down Hubei province on Jan 23, countries across the globe started shutting their borders to international travel. Although the move was gradual, tourism and aviation have been left stranded, bereft of customers.
The situation worsened after the World Health Organization declared Covid-19 a global pandemic on March 12, as governments took to locking down even more tightly in a bid to curb the growing infection rate.
This also tightened the screws on demand for goods and services, leading to zero cash flow in many instances and job cuts. Already, South Korea’s trade numbers have set alarm bells ringing. For the first 20 days of April, South Korea reported a near 27% plunge in exports y-o-y, while imports sank 18.6%.
Westports will certainly see an erosion in earnings from the second quarter.
Yet, despite the gloomy short-term outlook for the country’s largest port operator, Ruben is confident the group can stay afloat even without government assistance. “We are still able to work, so I feel that the government is right to focus on sectors that require more assistance. The country needs to ensure that employment stays intact for the economy to recover post-MCO,” he says.
“We have no plans to lay off our workforce, even if utilisation at the port declines to 50%. It is just a matter of deploying them to different projects. At the same time, we can focus on innovating our processes if our workforce has more idle time.”
At 10.9 million TEUs container throughput, Westports was operating at a utilisation rate of 78% last year. This year, it will complete the development of Yard Zone Z at Container Terminal 9 (CT9), which will allow more containers to be kept at the terminal.
Ruben says the port operator will set aside RM400 million this year for the development of Yard Z as well as a liquid jetty for new liquefied petroleum gas and liquefied natural gas clients and maintenance expenditure.
On the development of Westports 2, he says the group is still negotiating the commercial terms of the concession agreement with Lembaga Pelabuhan Klang, and hopes it can be signed by year-end.
On Aug 25, 2017, Westports’ wholly-owned subsidiary Westports Malaysia Sdn Bhd received approval-in-principle from the government to expand its container terminal facilities beyond CT9. A year later, the group acquired 154.2ha of leasehold land under the sea from Perbadanan Kemajuan Negeri Selangor for RM116.2 million. The land is earmarked for the expansion.
Then, in February this year, Westports announced the acquisition of a 146.4ha leasehold parcel from its major shareholder Pembinaan Redzai Sdn Bhd for RM393.36 million — a price AmInvest Research deems “fair” at RM25 psf, as it is within the average land price on Pulau Indah.
The Westports 2 project is set to be another milestone as it will add 10 terminals and double the port operator’s capacity to 28 million TEUs by 2040. An estimated RM10 billion will be ploughed into the project during the 20-year period.
Last year, Westports recorded an 11% y-o-y increase in net profit to RM590.9 million, on the back of a 10% rise in operation revenue to RM1.78 billion — the improvements were attributed to higher throughput and flattish operational expenditure, as well as a full 2QFY2019 impact from a 13% gateway tariff revision, which took effect from March 2019.
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