Minimal impact to Westports following delayed tariff rate
KOTA KINABALU: Analysts are neutral on Westports Holdings Bhd (Westports) seeing a postponement of the implementation of Phase Two of the revised container tariff would only take effect on 1 March 2019, instead of 1 September 2018 as previously gazetted.
Phase Two would supposedly see an approximate average increase of 13 per cent from current tariff rates.
Last Friday, Westports received a letter from the Port Klang Authority regarding this postponement. Recall that on August 6, 2015, Westports announced that the container tariff revision had been approved by the Ministry of Transport, and will be implemented in two phases.
Phase One came into effect on November 1, 2015 after being postponed twice – first from September 1, 2015 to October 1, 2015, then to November 1, 2015 – which saw an approximate average of 15 per cent increase in tariff rates. Prior to this, the previous tariff hike was around 2001.
Affin Hwang Investment Bank Bhd (AffinHwang Capital) was mildly disappointed by this move while estimating minimal impact to Westports’ earnings.
“We are mildly taken aback by the deferment as we had expected the implementation according to the initial timeline,” it said in a note yesterday.
“Although the official tariffs are raised on average by 13 per cent – for both gateway and transhipment cargoes – only the higher gateway tariffs will be enjoyed by Westports in reality.”
To note, contracts for transhipment cargo are negotiated directly with the shipping liners and are market driven by regional competing ports.
“In contrast, gateway cargo is captive necessary shipment to a particular port,” AffinHwang Capital added. “Therefore, we revise our gateway cargo tariffs following the delay in tariff revision.
“Aside from that, we take the opportunity to dial back our cargo volume assumption which was previously too optimistic.”
Kenanga Investment Bank Bhd (Kenanga Research) estimated that in the second quarter (2Q18), gateway constitutes roughly 36 per cent of Westports’ total container throughput.
“Overall, while the delay would have an immediate adverse impact towards FY18 earnings, the positive takeaway from this is that it does represent the new government’s willingness in embracing the tariff hike.
“We believe the postponement is seen as mostly to avoid coinciding with the implementation of SST, and thus, allowing businesses additional time to adapt to the price increase along their supply chain,” it added.
Following this update, MIDF Amanah Investment Bank Bhd (MIDF Research) maintained its total container volume growth for Westports at 4.6 per cent year on year (y-o-y) for FY18.
“While expansion plans for the CT10-CT19 will ramp up capacity to about 30 million TEUs per annum – from 14 million TEUs per annum currently –by 2040 are gradually progressing with the feasibility studies, we do not foresee any earnings accretion in the next two to four years,” it said.
“Moreover, current utilisation rates of its container terminals are hovering around 70 per cent while the development of CT9 Phase 2 will only be considered upon hitting a utilisation rate ranging from 75 to 85 per cent which translates to 10.5 million TEU to 12 million TEU per annum.
“Therefore, we are still maintaining out total container volume growth of 4.6 per cent y-o-y for FY18.”
We are mildly taken aback by the deferment as we had expected the implementation according to the initial timeline. AffinHwang Capital