Infra (Ports) : Acquisition the way forward for Westports? Neutral

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Infra (Ports) : Acquisition the way forward for Westports?          Neutral

An option opened to Westports to mitigate the impact of the potential of shipping lines shifting transshipment traffic to Singapore is to expand via acquisitions, other than via organic expansion in Port Klang, in our view.

Westports had, in the run-up to its listing in 2013, spoke of acquiring regional ports as part of its long-term growth plan. Then, CEO Ruben Emir Gnanalingam had reportedly said that Westports wanted to be part of other ports in the region when it reached full capacity. He reportedly said Westports was eyeing India because the level of containerisation was still quite low at 15% compared with Malaysia's 60%-70%.  Subsequently, he reportedly also said ports in Southeast Asia were also potential targets.

Westports' plan is to look ashore upon its capacity reaching 16mil TEUs with the construction of CT9. Our model currently assumes that occurring in FY2020. It is now in the midst of constructing CT8, which will increase capacity to 13.5mil TEUs by mid-2017. Gearing still at comfortable level: Westports' net gearing (net debt/shareholders' equity) stood at 0.4x as at end-2015. We expect that to rise to a peak of 0.55x in FY17F, on the back of the capex on CT8 of over RM1bil, before dropping to 0.37x in FY18F. Any acquisition could possibly occur from FY18F onwards, while the schedule for CT9 remains uncertain.

Starbiz on Monday reported that the government wants a World Bank study to be expedited for the drawing up of a national ports strategy. The 10-month study, which was initially scheduled  for completion by 1Q16, was aimed at aiding port development in the country. The matter is now in the spotlight in view of the developments in Singapore that recently launched the construction of the first phase of a mega port in Tuas that will eventually have a capacity to handle 65mil TEUs.

We maintain HOLD on Westports, with an unchanged fair value of RM4.16/share - a 15% discount to our DCF value of RM4.87/share, implying 24x PE FY16F EPS. We view any acquisition of regional ports to be a catalyst for growth for Westports, but maintain our call pending greater clarity from the shake-up of the global shipping alliances.

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