Westports stands to gain from growing cargoes, new alliances

KUCHING: Port operator Westports Holdings Bhd (Westports) stands to gain from Malaysia’s growing cargoes in the midst of the port’s newly formed alliances within the region.

Researchers with MIDF Amanah Investment Bank Bhd (MIDF Research) said Westports’ gateway cargo segment could spring some positive surprises as throughput for the segment grew eight per cent year on year (y-o-y) in the fourth quarter of financial year 2016 ( 4QFY16), after registering flat growth in the preceding three quarters.

“Growth in gateway throughput was partly due to higher imports ahead of the Chinese New Year holidays in January and was in line with Malaysia’s external trade growth which expanded 8.2 per cent y-o-y in 4QFY16,” it said in a note recently.

“With Malaysia’s external trade data coming in even stronger in January and February this year, we expect at least some of this growth to translate into higher gateway throughput at Westports who benefits from a higher volume of containerised import and export cargo.

“Higher growth in the gateway cargo segment would bode well for Westports, helping its average unit revenue as handling charges for the gateway cargo are significantly higher than that of transhipment cargo.”

This was on the back of changes effective April 2017 whereby Westports and the Port of Singapore (PSA) will be the Ocean Alliance’s transhipment hubs in Southeast Asia.

This comes as CMA CGM and its newly formed Ocean 3 Alliance adopted a dual-hub strategy in the region.

“WebelievethatPSAwasselected as the Ocean Alliance’s main South East Asia transhipment hub in order to facilitate CMA CGM’s acquisition of Neptune Orient Lines (NOL) from Temasek, and avoid port congestion through PSA’s abundant container handling capacity,” it added.

“In formalising the arrangement, CMA CGM and PSA established a jointventure to operate four container berths which is capable of handling an annual capacity of over 3 million 20- foot equivalent unit ( TEU) containers.”

In the research firm’s opinion, the transhipment business in the Straits of Malacca where Westports, Port of Tanjung Pelepas and PSA compete for transhipment business might not necessarily be a zero-sum game.

“The enlarged Ocean Alliance would have been too large for Westports to handle alone anyway,” it opined. “Prior to the formation of the Ocean Alliance, CMA CGM used to be part of the relatively modest Ocean 3 Alliance.

“It would only be logical for CMA CGM and the Ocean Alliance to hedge its transhipment bets on the straits of Malacca by employing a dual-hub strategy using both PSA and Westports, as relying on Westports alone would put the alliance at risk of facing port congestions should volumes pick-up at a faster pace than forecasted.”

Albeit receiving fewer port calls, Westports would be servicing a far larger alliance and also gain higher exposure to Evergreen, Cosco and OOCL which have traditionally not been key transhipment customers.

Given its advantages of having one of the cheapest -- if not the cheapest --transhipment handling rates along the Strait, coupled with the weaker ringgit, MIDF Research said it would not be implausible for these carriers to offset the potential losses in throughput from CMA CGM and UASC.

Thus, the firm maintained its ‘buy’ call on Westports with a target price of RM5 per share.

“We understand that management have submitted proposals to the government for further expansion of its container berths. In our view, the incoming capacity would allow Westports to compete for transhipment business more effectively.”