Westports’ transshipment at competitive position supported by its capacity expansion

The port operator is allowed to proceed with the proposed land acquisition of Marina Land for RM394m

by SHAZNI ONG / pic by MUHD AMIN NAHARUL

WESTPORTS Holdings Bhd’s Westport 2 expansion plan is expected to increase the port’s capacity by 50% to 28 million twenty-foot equivalent units (TEUs) per annum by 2040, analysts said.

MIDF Amanah Investment Bank Bhd (MIDF Research) said the expansion would allow Westports to compete more effectively for transshipment volumes against Ports of Singapore, which would raise its capacity from around 40 million TEUs to 65 million TEUs by 2040.

The research firm downgraded its call on Westports to ‘Neutral’ from ‘Buy’ previously as it believed that Westports is trading at its fair valuation range as the price is trading at 20.6 times.

“We continue to view Westports positively due to lower transshipment tariffs among its peers such as Port of Tanjung Pelepas and Port of Singapore even after taking into account the second phase of tariff hike in March 2019.

“The extension of the Ocean Alliance to 10 years (initially five years) until 2027 will mitigate the effects from the reshuffling of alliances profoundly seen in the financial year 2017 (FY17),” it noted.

The contribution from intra-Asia and Asia-Europe trade lanes may face temporary downward pressure from the coronavirus for FY20.

Nonetheless, MIDF Research maintains its target price (TP) to RM4.03 per share as it maintains its earnings forecast on Westports with the TP based on the research firm’s discounted cashflow valuation terminal growth of 3%, and a weighted average cost of capital of 7.5%.

“Risks to our call include prolonged coronavirus outbreak and any abrupt downside revision to port tariffs,” the research firm adds.

The port operator also announced that it has received an approval letter from the Economic Planning Unit to proceed with the proposed land acquisition of Marina Land from Pembinaan Redzai Sdn Bhd for a cash consideration of RM394 million.

“The Marina Land will complement the 154.2 acres (62.4ha) of land previously acquired by Westports in 2018 for RM116.2 million, as part of the Westports 2 expansion,” MIDF Research noted.

“The next steps include the conversion of the category of land use, (and) the signing of a concession agreement with the federal government for the container terminal expansion by late December 2020,” the research firm said.

Assuming that the timeline is met, Westports would have to pay RM354.6 million (the remaining 90% of the total purchase consideration) within three months after the conditions precedent has been met.

“Following this, land reclamation works could potentially begin in the first quarter of the calendar year 2021 (1QCY21), giving a longer buffer period before commencement of wharf construction begins which is expected to be later in 2023.

“This would then (be) followed by the delivery of cranes towards the end of CY24, enabling the operations to begin later in CY25,” the research firm said.

Recall that MIDF Research said the proposed purchase of Marina Land was in line with the management’s strategy to undertake a periodic increase in its container throughput capacity to meet the projected increase in demand.

On earnings estimate, MIDF Research said previously, the management highlighted that funding sources will be a combination of a form of equity raising such as dividend reinvestment plans or rights issue for phase 1 (covering container terminals 10 to 13).

This is followed by debt financing in the later phases of Westports 2 which will take place at a later-than-scheduled period either in FY21 or FY22 (instead of FY20) due to the expected drop in volume in FY20.

“As the conclusion of the concession terms is still pending, we have yet to impute Westports 2 into our estimates. However, as we are expecting the concession terms to be concluded within the first half of FY21, we will be revisiting our earnings estimates then.

“The estimated capital expenditure (capex) (excluding Marina Land) allocated for FY20 forecast remains unchanged in the range of RM300 million to RM400 million and has been inputted into our forecasts.

“The capex includes the deployment of more quay crane and rubber-tyred gantries and the construction of the liquid bulk jetty,” the firm said.