Westports’ volumes likely to remain steady

Westports Holdings Bhd
(Jan 9, RM4.12)
Maintain buy with a lower target price (TP) of RM4.70:We maintain our “buy” call on Westports Holdings Bhd with a lower TP of RM4.70. We have factored in the upcoming provision as a one-off into our numbers to reflect the cost of damaged cranes in a November incident. We have also trimmed our numbers for the financial year ended Dec 31, 2019 (FY19) to input a 14% volume growth as announced versus a 15% volume growth in our assumptions. Nonetheless, we expect volumes to remain steady in the coming quarters, backed by higher services from the Ocean Alliance as well as higher intra-Asian volumes. This will help drive Westports’ earnings growth of about 5% in FY20. The expansion of Container Terminal 9 (CT-9) is scheduled to take effect from FY20 to leverage growing demand. Utilisation rates already hit 75% during the busy months. We believe valuations are attractive with the stock currently trading below mean price-earnings and price-to-book value multiples.

Our core earnings forecasts are above the consensus as we have factored in higher volume growth.

Potential catalysts include long-term capacity expansion. Westports is planning to expand its current capacity of 14 million twenty-foot equivalent units (TEUs) to 27 million TEUs by 2023 via the expansion of CT-10 to CT-17. The group targets to complete the design and negotiation of terms by the second quarter of FY20.

We decrease our discounted cash flow-based TP to RM4.70 (7.5% weighted average cost of capital) as we trim our volume forecasts. Our TP implies 20 times forecasted FY20 price-earnings ratio, in line with +1 standard deviation of its historical mean.

Key risks to our view include a deterioration in container volumes, due to worsening economic and trade conditions, and an adverse reshuffling of shipping alliances. Such negative developments would impact Westports’ earnings and valuations. —AllianceDBS Research, Jan 9