Container tariff revision and increase in shipping lines would likely benefit the port operator

By FARA AISYAH / Pic By MUHD AMIN NAHARUL

WESTPORTS Holdings Bhd should post higher earnings with stable margin of about 34% for its second quarter of 2019 (2Q19), the results of which are scheduled to be released today.

BIMB Securities Sdn Bhd Research expects the port operator’s 2Q to benefit from the increase in number of lines from shipping alliances (especially with the Ocean Alliance from May onwards) combined with last year’s corresponding quarter’s low base effect from the consolidation of shipping alliances.

The port operator would also benefit from the continued growth in South-East Asian economies, which means greater trade activities for the intra-Asia trade line (an estimated 50% to 60% of the total throughput volume).

Westports should also see a higher margin from the container tariff revision in March 2019, which will see its full higher rate impact in 2Q, BIMB Securities Research stated in a research note yesterday.

The company could also see a higher yield from greater local cargo growth, BIMB Securities Research added.

“Westports’s 2Q container throughput volume is expected to be at 2.5 to 2.7 million twenty-foot equivalent units (TEUs) versus 2.5 million TEUs recorded in 1Q,” BIMB Securities Research stated.

The forecast volume for the financial year 2019, however, remains at 5% container throughput growth (in line with a management guidance of 3% to 8%) on the concern of a slow second half (2H) of 2019 throughput growth, amid effects of the higher base observed in 2H18 and concerns about competition from Singapore’s port.

BIMB Securities Research currently has a ‘Buy’ call on the counter with a target price of RM4.30.

“We continue to like Westports’ stable business model that combines both attractive, high-yielding local cargo and volume-centric transhipment segment, as well as steady dividend payment stream (75% payout) that consistently rewards long-term shareholders,” it said.

The research firm also expects domestic ports to register better container volume growth due to the growing South-East Asian economy, as well as the increase in Ocean Alliance calls.

It estimates Westports and Port of Tanjung Pelepas will see container throughput volume growth of 3% to 5% year-on- year (YoY).

BIMB Securities Research said the outlook for global container is anticipated to remain stable in 2019 despite the US-China trade friction.

Westports earnings for 1Q19 increased 13% YoY to RM139.9 million due to higher gross profit.

Its revenue rose by 7.82% YoY to RM415.19 million due to double-digit growth in container volumes and the implementation of container tariff hike with effect from March 1, 2019.

“Westports is expecting to achieve higher overall container throughput in 2019 with growth coming from both the gateway and transhipment segments,” Westports group MD Datuk Ruben Emir Gnanalingam Abdullah had said in the 1Q statement.

Westports handled 2.53 million TEUs of containers in 1Q19, which is an increase of 12% from the previous corresponding period.

Transhipment containers also improved by 15% to 1.71 million TEUs, while gateway volume increased by 7% to 820,000 TEUs.

BIMB Securities Research expects Westports to handle about 10 million TEUs in 2019.

In its exchange filing, Ruben added that Westports was finalising its planning details for a proposed multi billion container terminal expansion and would be concluding the necessary detailed studies in the coming quarters.

The proposed expansion would further strengthen the company and Port Klang’s role as the pre-eminent port for the nation’s gateway trade and also reinforce the terminal as one of the main transhipment hubs in the South-East Asian region for international container shipping alliances.