Westports sees brighter outlook
Port operator expects to perform better next year
MALAYSIA’s largest port operator, Westports Holdings Bhd, views its declining container volume growth as a temporary setback and expects a brighter outlook next year.
An unprecedented realignment of new global alliance of shipping lines and mergers and acquisitions (M&A) in the global shipping industry have pulled down Westports’ container throughput since the second quarter of this year.
In the first nine months of financial year 2017 (9M17), Westports recorded a significant reduction in container throughput by 8% to 6.8 million twenty-foot equivalent units (TEU).
While local container throughput has risen by nearly 8% in 9M17, the group’s transhipment segment registered a fall of 13%.
The group is anticipating its container throughput to fall by 7% to 12% year on year (y-o-y) in 2017.
Last year, Westports accounted for 76% of the total containers that were handled at Port Klang and 18% of all volume passing through the Straits of Malacca.
The lower performance of Westports’ transhipment segment has hit its financials, with its 9M17 bottom line declining by nearly 9% y-o-y to RM440.53mil.
Its operational revenue was also slightly down by 4% y-o-y to RM1.28bil, as compared to RM1.34bil a year earlier.
Westports chief executive officer Ruben Emir Gnanalingam is unperturbed by the port operator’s recent decline in container volume as he remains focused on reversing the current situation.
“The ongoing adjustments and recalibration in 2017, following the alliance changes and M&A within the liner industry which affected some of our key clients, are contributing to our lower throughput in 2017.
“However, after these adjustments have taken place, we would expect 2018 to be a year of growth again,” he says in an email interview with StarBizWeek.
The Main Market-listed counter, which has fallen by nearly 12% over the last one year, has a market capitalisation of RM12.38bil.
CIMB Research describes the decline in the stock price as “excessive”, given Westports’ defensive earnings.
The founding Gnanalingam family is the single largest shareholder in the port operator, with an equity interest of 45.5%.
Global shipping lines have formed new alliances this year and as a result, some liners have diverted their port calls to Singapore.
In April, a reshuffle of the world’s key shipping alliances, saw the formation of the Ocean, THE and 2M shipping alliances.
These new alliances represent 77.2% of global container capacity and 96% of all East-West trades’ container capacity.
Prior to the realignment, four shipping alliances namely G6, CKYHE, 2M and Ocean alliances, served the global ports industry.
Currently, Westports serves as one of the South-East Asia transshipment hubs for Ocean Alliance and also as a port of call for a service under THE Alliance.
Westports is not the only Malaysian port operator that recorded lower container volume this year.
Its closest competitor, Northport (Malaysia) Bhd saw a 5.7% decline in container volume to 2.25 million TEUs in 9M17.
The drop in Northport’s container throughput is also attributed to the realignment of shipping alliances.
However, other major ports in Peninsular Malaysia recorded growth in the first nine months of the year.
Port of Tanjung Pelepas (PTP), Johor Port, and Penang Port saw container throughput growth of 1%, 12% and 7% in 9M17 respectively.
To note, Northport, PTP, Johor Port and Penang Port are all under MMC Corp Bhd’s ports stable.
Strengthening competitiveness
Moving forward, Ruben outlines three key strategies to improve the group’s competitiveness and to attract more port calls from the shipping liners.
They are cost-efficiency, minimal berthing delays and high levels of productivity.
“At Westports, we continue to focus on providing an excellent level of services to all our clients with minimal berthing delays and high levels of productivity.
“Being the largest terminal at Port Klang, we are also supporting domestic economic activities as we have seen strong growth of local containers in 2017.
“Westports also aims to be a cost-efficient and productive terminal that can accommodate clients’ requirements,” he says.
The port operator, which can handle up to 13 million TEUs per annum, is now undergoing expansion to further increase its container handling capacity and to cater for its long-term growth.
Westports is currently at the tail-end of its CT1 to CT9 container terminals expansion.
The construction work at CT8 has been completed and it has now progressed to the last terminal.
The completion of CT9 will push the group’s container-handling capacity to 16 million TEUs.
By 2040, Westports aims to more than double its current capacity to 30 million TEU, with the development of CT10 to CT19 container terminals.
To note, CT10-CT19 is an extension to the current CT1-CT9 container terminals expansion.
The port operator has received an approval-in-principle from the Government in August this year for the extension.
StarBiz has reported earlier that Westports could invest up to RM10bil for the expansion, via a combination of borrowings and internally-generated funds.
As at Sept 30, Westports was in a net debt position of nearly RM1bil, with a net-debt to equity ratio of 0.47 times.
The increase in Westports’ capacity by 2040 will ensure that the group keeps up with the planned consolidation and expansion of Singapore’s ports in Tuas as well as maintaining its lead against other planned terminals in Indonesia.
Not only that, the expansion will also allow Westports to weather possible domestic competition moving forward, as few deepsea ports are on the cards.
However, the latest news regarding the proposed RM200bil Carey Island port development may provide a relief for Westports.
It has been reported yesterday that the Carey Island port is now on backbunner, mainly attributed to global shipping alliances shifting operations to Singapore.
Earlier this year, MMC Ports and Indiabased Adani Ports partnered with each other to explore the feasibility of the Carey Island Port project as an extension of Port Klang.
Going forward, analysts foresee a positive container volume growth next year, which is likely to improve the company’s financials.
While CIMB Research predicts a 9.5% y-o-y decline in overall volume this year, it expects a marginal container throughput growth of 0.2% in FY18.
“Westports may have passed the lowest point of its transhipment volumes as 4Q17 is seasonally stronger.
“For FY17, we forecast transhipment volumes to fall 16% y-o-y and by a small 2% y-o-y next year.
“Meanwhile, gateway or local volumes did very well, due to strength in export volumes. We forecast FY17 gateway growth of 9% before it rises by a further 5% in FY18,” says the research house in an earlier note.
MIDF Research says that Westports’ outlook in the second half of this year remains murky, but FY18 will be better.
According to Bloomberg, three research houses have issued “buy” calls while 13 others recommend a “hold”. Two research houses have “sell” calls.