Post-Alliance commencement could cause excess capacity at Westports
KUCHING: Westports Holdings Bhd’s (Westports) could encounter potential excess capacity following the commencement of THE Alliance on April 1 this year.
According to Affin Hwang Investment Bank Bhd (AffinHwang Capital), THE Alliance has announced its final network realignment for all the 32 services it offers, and has selected PSA of Singapore as its Southeast Asia transhipment hub.
“THE Alliance is also embarking on a single-hub model, preferring to consolidating its operations at PSA rather than to dual-hub at Westports despite the cost competitiveness of the latter,” AffinHwang Capital said in a note yesterday.
Westports presently does not serve any of THE Alliance members, save for UASC with approximately one million twentyfoot equivalent units (TEUs) in annual transshipment boxes at Port Klang.
Post- commencement of THE Alliance on April 1, the research firm believed UASC is likely to gradually shift the one million boxes over to PSA as part of the alliance realignment, leading to potential excess capacity at Westports.
“The news does not come as a surprise, as we had earlier penciled in the loss of UASC volume in our sector note,” the research firm said.
“We are now assuming 2.4 per cent volume growth for 2017, which takes into account the ad-hoc shipping requirements necessitated by the alliance realignment, as well as the gradual phasing-out of the UASC boxes.”
AffinHwang Capital also imputed for the loss of CMA CGM volume, but that should be largely mitigated by the extra boxes from Evergreen and OOCL within the Ocean Alliance.
The research firm expected 2018 to contract 1.9 per cent as volume should fall without the inorganic container movements from the alliance realignment, but expect 2019 to pick up 4.7 per cent on growing containerisation.
Overall, recent share- price weakness has priced in most negatives, in AffinHwang Capital’s view.
“Now that the alliance uncertainties have been resolved, we expect the share price to be more fundamentally driven,” it said.
“Westports remains a long-term structural growth proposition with a wide economic moat and solid track record, in our view.”
Affin Hwang thus maintained ‘buy’ with a target price of RM4.70 per share.