AmWatch - Westports Holdings : >30% container tariff hike approved over 2 phases BUY, 7 Aug 2015

STOCK FOCUS OF THE DAY

Westports Holdings  : >30% container tariff hike approved over 2 phases              BUY

We maintain BUY on Westports, with an unchanged fair value of RM4.87/share, a 15% discount to our upward revised DCF-derived value of RM5.73/share.

Our fair value represents a 25x PE against FY16F EPS. This follows the government’s approval of its proposed tariff hikes. The Transport Ministry’s letter of approval dated 5 Aug was addressed to the Port Klang Authority, and was gazetted on 12 June 2015 and 3 Aug 2015.

The revised tariff covers container terminal handling charges for import, export, transhipment, shifting and re-stow, storage charges for container and handling charges for heavy lift or uncontainerised cargo.

To be implemented in two phases, the hike entails an average increase of ~15% on key container tariff items, particularly terminal handling charges, which will take effect on 1 Sept 2015, and an another average increase of ~15% with effect from 1 Sept 2018.

We believe the rate hikes are justified given that the group has expanded operations over the years, with the addition of two more container terminals and in its announcement yesterday, Westports said the last revision of the key container tariff items at Port Klang was ~14 years ago. The rate increase is higher than our previous assumption.

We had earlier imputed a 15% hike in our implied gateway container rates with effect from FY16. We have upped our FY15F earnings by 3% (stemming from a 4% upward revision in our gateway rate assumption).

Reiterate BUY for earnings growth prospects from the expansion of the port and the rate hikes for both gateway and transshipment traffic.

Others :

KKB Engineering : 1H15 result beats expectations             BUY

Malaysia Building Society : Prudent provisioning stance sustained in 2Q  HOLD

NEWS HIGHLIGHTS

AirAsia : Operational costs soar on KLIA2 shortcomings

IHH Healthcare : India’s hospital deal in talk’s stage

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.