AmWatch - Westport Holdings : Tariff increase from 1 Oct to mitigate slowdown BUY, 10 Sep 2015

STOCK FOCUS OF THE DAY

Westport Holdings : Tariff increase from 1 Oct to mitigate slowdown       BUY

We maintain BUY on Westports, with an unchanged DCF- derived fair value of RM4.79/share, representing 27x FY16F PE (vs. a high of 29x in recent months). Westports management has reiterated a 5% to 10% growth in container traffic for FY15F, as volumes continued to be “holding up”, supported by August export figures. Its CEO Ruben Emir Gnanalingam recently told digitaledge Daily, however, that overall consumption would slow down on uncertainty over how the GST affects consumer.  A strong pickup in exports has yet to be seen, but it sees a lag effect from the weakening ringgit that would see the impact being felt later. Additionally, the port has yet to experience a marked slowdown in imports.

On average, Westports’ gateway traffic is equally composed of imports and exports, making up 50% each. While the weak ringgit will tilt the numbers towards exports, it does not foresee any dramatic change and the ratio could be at 51:49 in favour of exports. The weak ringgit is foreseen as having no impact on transshipment. However, we believe transshipment volumes will hinge largely on whether its main customers – the Ocean 3 Alliance – could continue to increase market share in an overall slowing trade environment. All in, we maintain our FY15F container growth assumption at 8%, cut recently from 10%. Positively, any slowdown in volume growth will be mitigated by the recent regulatory 15% increase in container tariffs which will now take effect from 1 Oct, 2015. While Westports remains open to potential M&As, it has yet to find a suitable target.

Reiterate BUY for:- (1) the full-year impact of the tariff hike, which will be realised in FY16F; (2) CT8 will increase its throughput capacity by 11% by early next year to 12.2mil TEUs and by another 11% to 13.5mil by mid-2017; (3) stable dividend payout, with 75% dividend policy and yield of ~3%; and (4) potential of lower taxes, stemming from its appeal for a five-year investment tax allowance.

Others :

Alam Maritim : OSV market remains slow             HOLD

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