WPRTS (5246) : Ports - Westports is the big brother
Recommendation: Over Weight
Our visit to Northport late last year reaffirms our view that the Port Klang complex is likely to see a tariff hike this year. In addition, Northport’s efforts to upgrade its port facilities may not impact Westports’s competitiveness materially, given the significant draft constraints at the northern channel approach. The possible tariff hike is a major catalyst for Westports, our top sector pick. We stay Overweight on ports.
The possible tariff hike is a major catalyst for Westports, our top sector pick. We stay Overweight on ports.
Northport’s plans
We attended Northport’s analyst briefing and port tour hosted by group managing director Tuan Haji Abi Sofian in December last year. Northport (NP) admitted that the continued loss of market share and container traffic volumes to Westports (WP) has forced NP to take a long, hard look at its customer service proposition. It now offers its top shipping customers an area within the port to do repair and maintenance of boxes, and also for the storage of empties, as well as give them the privilege of berthing on arrival and guaranteeing fast turnaround of less than 13 hours by deploying an optimum number of quay cranes. As a result, NP has succeeded in attracting PIL to return to NP (from WP), and also secure commitment from key customers like Wan Hai and KMTC.
In addition, NP intends to dredge Wharf 8 to a depth of 17m, so that it can be used together with the contiguous Wharf 8A. While NP’s Wharf 8A has a depth of 17m that is necessary to accommodate megaships, its length of just 350m is shorter than the 400m length of the 18-19k teu ships, so Wharf 8A is underutilised. But combined, both wharves have a total length of 580m. The process to upgrade Wharf 8 is expected to be completed by 2016.
Tariff hike needed
We are unclear if NP’s efforts to upgrade its port facilities and commercial offerings will make any dent on WP. NP admitted that the Malaysian government is unlikely to dredge the Northern Approach into NP, and with a draft of only 11.3m currently at low tide, and up to 16.6m at high tide, it will be practically impossible for laden 16-19k teu ships with a draft of 16m to pass through the channel. Even 5,000 teu ships with a fully-laden draft of 14m will have to wait for the high tide, or steam through the Northern Approach lightly laden. So we are unsure if NP’s efforts to deepen its berths will have economic significance in the absence of channel deepening.
Another interesting point from the NP briefing was the MD’s support for an increase in the official port tariffs for Port Klang (which impact both NP and WP), as NP needs the money to finance its infrastructure upgrades (RM700m-800m capex forecast over 2015-17). NP is of the opinion that a 20% tariff hike is insufficient given that rates are only increased every 10-15 years. Our view is that a 30% tariff hike is the most likely scenario.
Catalysts for Westports
We believe that NP’s new 15.7% shareholder, MMC Corp, is likely to exert positive influence to push the tariff hike through, and this will be one of the key catalysts for WP’s share price this year, in our view. Meanwhile, the Ocean Three alliance is on track for implementation from this month onwards. Finally, despite NP’s efforts in upgrading its facilities, we think that the constraints of the northern channel approach will likely have a limited impact on WP. We reiterate our Add recommendation on WP, with a probability-weighted DCF target price of RM4.57. See our initiation report for more details.
Source: CIMB Daybreak - 08 January 2015, Full PDF Report
Recommendation: Over Weight
Our visit to Northport late last year reaffirms our view that the Port Klang complex is likely to see a tariff hike this year. In addition, Northport’s efforts to upgrade its port facilities may not impact Westports’s competitiveness materially, given the significant draft constraints at the northern channel approach. The possible tariff hike is a major catalyst for Westports, our top sector pick. We stay Overweight on ports.
The possible tariff hike is a major catalyst for Westports, our top sector pick. We stay Overweight on ports.
Northport’s plans
We attended Northport’s analyst briefing and port tour hosted by group managing director Tuan Haji Abi Sofian in December last year. Northport (NP) admitted that the continued loss of market share and container traffic volumes to Westports (WP) has forced NP to take a long, hard look at its customer service proposition. It now offers its top shipping customers an area within the port to do repair and maintenance of boxes, and also for the storage of empties, as well as give them the privilege of berthing on arrival and guaranteeing fast turnaround of less than 13 hours by deploying an optimum number of quay cranes. As a result, NP has succeeded in attracting PIL to return to NP (from WP), and also secure commitment from key customers like Wan Hai and KMTC.
In addition, NP intends to dredge Wharf 8 to a depth of 17m, so that it can be used together with the contiguous Wharf 8A. While NP’s Wharf 8A has a depth of 17m that is necessary to accommodate megaships, its length of just 350m is shorter than the 400m length of the 18-19k teu ships, so Wharf 8A is underutilised. But combined, both wharves have a total length of 580m. The process to upgrade Wharf 8 is expected to be completed by 2016.
Tariff hike needed
We are unclear if NP’s efforts to upgrade its port facilities and commercial offerings will make any dent on WP. NP admitted that the Malaysian government is unlikely to dredge the Northern Approach into NP, and with a draft of only 11.3m currently at low tide, and up to 16.6m at high tide, it will be practically impossible for laden 16-19k teu ships with a draft of 16m to pass through the channel. Even 5,000 teu ships with a fully-laden draft of 14m will have to wait for the high tide, or steam through the Northern Approach lightly laden. So we are unsure if NP’s efforts to deepen its berths will have economic significance in the absence of channel deepening.
Another interesting point from the NP briefing was the MD’s support for an increase in the official port tariffs for Port Klang (which impact both NP and WP), as NP needs the money to finance its infrastructure upgrades (RM700m-800m capex forecast over 2015-17). NP is of the opinion that a 20% tariff hike is insufficient given that rates are only increased every 10-15 years. Our view is that a 30% tariff hike is the most likely scenario.
Catalysts for Westports
We believe that NP’s new 15.7% shareholder, MMC Corp, is likely to exert positive influence to push the tariff hike through, and this will be one of the key catalysts for WP’s share price this year, in our view. Meanwhile, the Ocean Three alliance is on track for implementation from this month onwards. Finally, despite NP’s efforts in upgrading its facilities, we think that the constraints of the northern channel approach will likely have a limited impact on WP. We reiterate our Add recommendation on WP, with a probability-weighted DCF target price of RM4.57. See our initiation report for more details.
Source: CIMB Daybreak - 08 January 2015, Full PDF Report
