This article first appeared in The Edge Malaysia Weekly on June 10, 2019 - June 16, 2019

WESTPORTS Holdings Bhd is expecting double-digit growth in container volume this year as the reshuffling of global shipping alliances comes to an end.

It previously estimated a 3% to 8% growth for this year.

Executive chairman Tan Sri G Gnanalingam says concerns over the impact of shipping alliances on ports have subsided as most shipping lines had already realigned themselves since last year.

“The forging of new alliances is almost done. There were 300 shipping lines when I started. Now, that number has come down to 35 and these alliances want to make only one port call in each of the different countries,” he tells The Edge.

As at Feb 29, 2018, Gnanalingam and his family held a 45.52% stake in Westports, largely through their private investment vehicle, Pembinaan Redzai Sdn Bhd.

Another major shareholder is Hutchison Port Holdings Ltd — controlled by Hong Kong tycoon Li Ka-shing — which holds a 23.55% stake.

The terminal operator saw a 9% year-on-year decline in container volume in 2017 to nine million TEUs (20-foot equivalent units), which it had attributed to the realignment in the container shipping industry that affected almost all major shipping lines that year. The industry also witnessed a wave of mergers and acquisitions, in which some of Westports’ clients were involved.

However, last year saw a rebound in the volume of the terminal to 9.5 million TEUs. And Westports is on course to meet its double-digit growth target for 2019, looking at its first-quarter figures, which showed it handled 2.53 million TEUs — an increase of 12% over the previous corresponding period.

“We had two crises before — both times, we saw a drop in volume, but we recovered very fast. We were also fortunate that even though we experienced a decline in volume, we didn’t sack any employee, but [continued to] build for the future. We improved on our berth capacity, which has stood us in good stead. The same thing today ... we are building for the future,” says Gnanalingam. However, he warns that net profit in the financial year ending Dec 31, 2019 (FY2019), will likely continue to slide as the group carries on with its container terminal expansion. Westports has invested RM2.5 billion in the expansion project and other major infrastructure improvements over the last five years, according to its 2018 annual report.

The group saw an 18% y-o-y decline in net profit to RM533.47 million last year on a higher effective tax rate of 24% due to the investment tax allowance claim in FY2017. Revenue fell 23% y-o-y to RM1.61 billion. However, net profit for 1QFY2019 rose 13% y-o-y to RM139.9 million while revenue grew 7.8% to RM415.19 million.

In a May 9 note to clients, Kenanga Research analyst Nikki Thang has a “market perform” call on Westports with a target price of RM3.75, given its unexciting earnings growth prospects. Westports’ share price has risen 12% over the past year to close at RM3.88 on Friday, giving the company a market capitalisation of RM13.23 billion .

“Westports is well on track with its expansion plans to cater for future trade volume growth. Nonetheless, we reiterate our view with Westports 2 expansion, which is anticipated to be executed in three phases, to be a longer-term prospect with full completion by 2040. Hence, we rule out any earnings accretive development over the next two years,” she says.

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