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Friday, 13 January 2017

(The Star) Slower volume growth seen for Westports

PETALING JAYA: CIMB Equities Research has lowered its target price for Westports Holdings Bhd from RM4.58 to RM4 as the port operator’s volume growth may slow down in the immediate term.
The research firm said as the planned April 1, 2017 container shipping realignments approached, it believed that Westports may deliver slower volume growth in financial years 2017-2018 than previously thought.
“The long-term risk comes from the planned development of the third Port Kelang facility at Pulau Carey that may compete with Westports.
“Our earnings per share forecasts and discounted cashflow-based target price have been reduced on lower volume assumptions; Pulau Carey risks have not been factored into our valuation. We maintain ‘hold’ as Westports remains a solid and profitable company,” CIMB Research said in a report.
On April 1, the Ocean and THE alliances will finally come into effect. This caps a tumultuous period in container shipping which started from late-2015, when CMA CGM began negotiations to acquire APL, and when Cosco was asked by the Chinese government to absorb CSCL. As a result, new alliances were negotiated last year.
CIMB Research said that when Ocean 3 alliance of container shipping companies CMA CGM, CSCL and UASC took effect in January 2015, Westports benefited handsomely, as CMA CGM broke off a partnership with Maersk on the Asia-Med routes and CMA CGM consequently moved transhipment volumes on the trade from Port of Tanjung Pelepas to Westports.
The brokerage said when CMA CGM successfully negotiated to acquire Singapore’s APL in mid-2016, it had hoped that Westports would benefit, but instead, CMA CGM signed a 49% joint-venture deal with PSA to jointly operate a terminal in Singapore.
“CMA CGM later said that it would transfer some one million 20-ft equivalent units (TEUs) of transhipment cargoes to Singapore, amounting to about one-third of its volumes in Westports, effective April.
“Meanwhile, a successful merger between Hapag-Lloyd and UASC may see some one million TEUs of UASC cargoes at Westports also leave, most likely to Singapore, in our view,” it added.
CIMB Research said despite an annualised two million TEUs of transhipment cargoes potentially leaving Westports from April 1, it may get more intra-Asia cargoes from Hapag-Lloyd and Cosco, and more long-haul transhipment cargoes from Evergreen and OOCL.
“Also, Westports may benefit from ‘ad-hoc’ liftings in the run-up to the April realignments. We now forecast 5.5% year-on-year volume growth in financial year 2017 (FY17), down from 9.7% previously.
“As FY18 will not likely have ‘ad-hoc’ liftings, we now forecast a 0.3% year-on-year volume decline, instead of the previous forecast of a 6% growth,” it said.
Early this week, The Star reported that the next massive port-industrial city project to be built in Klang Valley would be at Carey Island. The area earmarked covers over 10,000ha with infrastructure investments of about RM200bil.
The giant new port is also said to be able to handle more cargoes than the two existing ports in the Klang Valley combined.
Subsequently, Deputy Transport Minister Datuk Seri Abd Aziz Kaprawi was quoted in the press as saying that “Northport would own the third terminal on Carey Island” and that construction will start by end-2017. Northport is wholly-owned by MMC Corp Bhd.
“The port capex itself will be funded by private money, including possible participation by China Merchants, but the government will have to fork out capital expenditure (capex) for the basic infrastructure. We expect Phase 1 to open around 2024-2025, at about the same time as Singapore’s massive Tuas terminal,” CIMB Research said.
The Pulau Carey port would be expensive to build because of breakwater requirements and significant land reclamation works, but the government appeared intent on proceeding to cater to Malaysia’s long-term needs, said the research firm.
“Once fully built, the port may have capacity for 30-40 million TEUs per annum versus Westports’ maximum capacity of 16 million TEUs by 2020-2021.

“Hence, by mid-2020s, there could be a significant supply of port capacity in Asean that could intensify price competition, notwithstanding high capex costs at Pulau Carey,” the brokerage said.