AmWatch - Westports Holdings : Tariff hike optimism, nod seen by this year BUY, 3 Aug 2015

STOCK FOCUS OF THE DAY

Westports Holdings  : Tariff hike optimism, nod seen by this year              BUY

We upgrade Westports to BUY from HOLD, with a higher DCF-derived fair value of RM4.87/share (vs. RM4.35/share previously), based on management’s expectations of a container tariff hike that could be announced in the next few months.

Our fair value implies a fair PE of 22x our upward revised FY16F EPS. At a conference call last Friday, management said they had obtained indications the authorities were amenable to the hikes. The hikes could be at 10%-30%. As such, we have incorporated a 15% tariff hike in gateway container traffic, leading to a 12% and 13% increase in earnings for FY16F and FY17F. Even though the regulatory rates for transshipment containers would also rise, we are leaving their tariffs unchanged for the time being. Transshipment containers are subject to long-term contracts with shippers, and the impact is still unclear. This means there is further upside to our fair value. Furthermore, management has appealed for another five-year round of investment tax allowance that would lower its tax expenses. We have yet to factor this into our model.

Westports’ 1HFY15 net profit of RM242mil (+4.6% YoY) met expectations – accounting for 47% and 46% of our and consensus forecasts, respectively. It declared a DPS of 5.32 sen, representing a 75% payout, and translating to a yield of 1.3%. We deem the results to be in line. Management expects the 3Q result to be better than 2Q on the back of anticipated improved numbers on the Asia-China and Asia-Africa trade lanes, and sustained growth in the Asia-America lane. For 1HFY15F, total container volume was up 10% YoY (transshipment 11%; gateway 8%) at 4.4mil TEUs, accounting for 48% of our estimate. Transshipment accounted for 71% of total throughput. We maintain our transshipment and gateway container traffic growth at 10% each for FY15F. Westports is maintaining the total container growth at 5%-10%.

Others :

Benalec : Upcoming goodies in store for Malacca?            BUY

Banking Sector : Improvement in June 2015’s leading indicators (loan)    NEUTRAL

Banking Sector : Significant increase in foreign holdings in MGS in June 2015 (MGS) NEUTRAL

QUICK TAKES

Malayan Banking : Second straight quarter of lower net earnings for BII                 HOLD

CIMB Group : Ongoing subdued trend in CIMB Niaga’s 2Q results              HOLD

Plantations  : Newsflow for week 27 to 31 July (NewsFlow)          OVERWEIGHT   

Plantations  : Key Takeaways from IndoAgri’s Conference Call (IndoAgri’s)                                           OVERWEIGHT   

               

NEWS HIGHLIGHTS

Top Glove Corp : Eyes RM2.5bil revenue this year

Banking Sector: RHB Cap may revisit plan to merge with Ambank

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.