STOCK FOCUS OF THE DAY
Westports Holdings : Reprieve from China’s rejection
of P3 Network HOLD
We maintain our HOLD call on Westports, but with a higher
DCF-derived fair value of RM2.91/share vs. RM2.69/share previously (WACC: 6.2%;
terminal rate after Year 2024: 1%). This implies a forward PE of 20x on FY14F
earnings (vs.19x previously).
Our higher fair value for the stock comes on the heels of
news that China’s regulators have rejected the P3 Network’s proposed alliance
to reroute their Asia-Europe/Mediterranean port calls. This came as a surprise
to the P3 alliance members. The US and European regulators had earlier approved
the proposals. It would have taken effect in 2H14. This is positive news for
Westports. Starbiz today cited Westports CEO Ruben Emir Gnanalingam as saying
that at this point, it is still expecting a 5%-10% rise in volume, but may have
a more narrow range post its 2QFY14 result.
The fear was not only about reduced throughput, but also the
potential price setting power that the alliance members could have garnered. We
are now assuming Westports’ container throughput (transhipment and
import/export) to grow by between 8%-9% annually vs. 5%-7% previously for
FY14FR-FY16F. As such, we have revised upwards the group’s earnings by between
5%-17% for FY14F-FY16F.
The 1.93mil TEUs achieved in 1QFY14 now accounts for 23%
(vs. 25% previously) of our full year estimate of 8.3mil TEUs (7.9mil TEUs
previously). Westports posted a 1QFY14 core net profit of RM109mil (+17% YoY;
-22% QoQ) – accounting for ~22% of our revised earnings for FY14F. With the P3
overhang out of the way, Westports is now well positioned to take advantage of
trade growth. Even prior to the Chinese regulators’ decision, Westports
had insisted that growth was expected to remain robust in FY14. Another
catalyst is the potential tariff hike, albeit the urgency of that happening has
eased, given the latest development.
Others :
Astro Malaysia : A decent start to the
year HOLD
YTL Power : Neutral on Project 4A
withdrawal HOLD
QUICK TAKE
Tobacco Sector : No-smoking zones expanded
NEUTRAL
NEWS HIGHLIGHTS
Malaysia Airports Holdings : Not lagging in role to help
bumi entrepreneurs
Automotive Sector : Vehicle sales rise to 55,939 units in
May
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