Westports poised for earnings recovery in 2Q
KUCHING: After four consecutive quarters of decline, Westports Holdings Bhd (Westports) registered its first positive growth in the second quarter of 2018 (2Q18) leading analysts to believe that from here on out, the ports operator will likely see further recovery in the second half of 2018 (2H18).
“Westports’ gateway volume remains the brightspot as earnings hit an expected lull with lower transhipment throughput and higher overheads.
“However, we believe Westports has seen the worst and is poised to for an earnings recovery through sustained container throughout growth come 2H18,” Affin Hwang Investment Bank Bhd’s research arm (Affin Hwang) said in a report yesterday.
The research house expected a recovery in Westports’ container throughput and a gateway tariff hike revision by 14 per cent in September 2018 to shore up earnings heading into 2H18.
“Organic growth will normalise in 3Q18 after Westports’ lost transhipment cargo to Singapore in April 2017,” it added, noting that throughput was shifted to enable CMA CGM to meet its NOL/APL acquisition terms.
Aside from that, it also believed that Westports is well insulated from an immediate direct overspill of a US-China trade war as the utilised Asia-Transpacific trade lane falls beyond Westports.
Meanwhile, the research arm of Maybank Investment Bank Bhd ( Maybank IB Research) maintained its four per cent volume growth assumption for 2018 as it expected stronger transshipment volume in 2H18 on the organic growth and possibility of Westports securing another service under THE Alliance.
It also noted that while the USChina trade tariffs took effect in March to June 2018, there is no noticeable impact to Westports’ volume as the transpacific trade does not ply across the Straits of Malacca.
On Westports’ expansion plans, MIDF Amanah Investment Bank Bhd’s research arm said Westports would start to consider the development of CT9 Phase 2 upon hitting a utilisation rate ranging from 75 per cent to 85 per cent which translates to 10.5 million TEU to 12 million TEU per annum.
Currently, Westports’ capacity stands at 14 million TEUs per annum with a utilisation rate of around 70 per cent.
“For the longer term, the expansion plans for CT10-CT19 that is expected to increase Westport’s capacity to 30 million TEUs per annum is currently undergoing feasibility studies which may conclude by either end FY18 or early FY19.
“Following the completion of studies, the company will negotiate a concession with the government and will probably start reclamation works sometime in FY20.
“Overall, this would allow Westports’ to compete more effectively against Ports of Singapore (PSA) which has plans to raise capacity from circa 45 million TEU to 65m TEU by 2027,” it added.
All in, MIDF Research maintained its ‘buy’ call on the stock. It said, “Overall, we favour Westports due to its strength in gateway container volume and its attractive tariffs compared to it Port of Tanjung Pelepas and PSA despite the scheduled tariff hike in September 2018.
“Moreover, Westports’ incoming capacity coupled with plans to increase automation in the long run would enable the company to compete for transhipment businesses more effectively.”
Maybank IB Research maintained a ‘hold’, as its expected the scheduled local container tariff hike in September 2018 to lift earnings ahead. Meanwhile, Affin Hwang reaffirmed its ‘buy’ call.Currently, Westports’ capacity stands at 14 million TEUs per annum with a utilisation rate of around 70 per cent.