KUALA LUMPUR (Nov 6): AmResearch has upgraded Westports Holdings Bhd to a Buy at RM2.93, with a higher fair value of RM3.40 (from RM2.91) and said the fair value implied a PE of 22x FY15F EPS.
In a note Thursday, the research house said the risk was skewed to the upside in view of the following: (1) Potential hike in container tariffs, the rates of which have been unchanged for the past decade and still lags behind those of the Port of Singapore by about half. A 1% increase in gateway (import/export) container tariffs will result in a 0.8% rise in earnings. A potential 20%-25% increase could lead to a 17%-21% rise in earnings.
The research house said gateway traffic accounted for 31% of container volume, and 42%-43% of terminal handling revenue.
AmResearch said that the Port Klang Authority (PKA) had submitted the proposals to the Ministry of Transport.
It said it was not known when the ministry will make a decision.
It added that the proposed hike would mostly impact gateway traffic and not transshipment rates, which are mostly long-term contracts with MLOs and have built-in inflation-linked increases.
AmResearch said three of Westports’ main line operators had formed an alliance known as Ocean Three (O3), which was expected to ramp up utilisation of the port as their Asean hub.
This will bring greater long-term stability to the port’s operations, even though the near impact may not be significant, it said.
AmResearch said unless there was a significant deterioration in the global and Asian economies, container throughput was likely to continue to grow at Westports.
It said historically, Westports’ container volume growth had grown at an average of 1.6x the country’s national output growth (at current prices).
“We project container throughput growth of 8%-9% for FY14F-FY16F.
“All in, Westports is our investing choice over Bintulu Port Holdings Bhd (Hold: FV: RM7.36), as the risks on the former are skewed to the upside,” it said.
Westports fell 1.02% or three sen to RM2.90, with 2.77 million shares done at 3.56pm.