WPRTS (5246) - Westports Holdings - Strong fundamental drivers
Target RM4.53 (Stock Rating: ADD)
Westports’ full-year core net profit was 5% above expectations, on the back of slightly higher-than-expected freight rates and a lower-than-forecast effective tax rate during 4Q14, while container volumes were in line. However, we lower our FY15-16 core EPS by 1-9% (due to upward revision in tax forecasts), and reduce our probability-weighted DCF target price, as the MoF has turned down Westports’ application for an extension of its Investment Tax Allowance (ITA). We maintain our Add call as we are confident that the company will successfully secure an increase in container handling tariffs, and because the Ocean Three alliance started operations in January and may contribute a net 0.5m teu increase in transhipment (t/s) volumes to Westports this year.
Highlights of FY14
Westports reported a full-year core net profit of RM524m, up 26% yoy, due to a 12% rise in container volumes, a 1.1% rise in average container tariffs, a 4.3% pts fall in the effective tax rate (to 11.5%) as more ITA was used up, and the cessation of the payment of fees to the major shareholder which amounted to RM40m in FY13. Costs rose in line with revenue growth, so gross margin was flat at 62%. Container volumes rose evenly across both t/s and gateway cargoes. From a trade lane perspective, intra-Asia and Europe trades showed solid 10% yoy volume growth in FY14, the smaller Australasia trade enjoyed strong 30% volume growth as the CMA CGM group used Westports to tranship more Australian cargoes, while the African volumes were hurt by the Ebola outbreak.
Non-approval of ITA a small disappointment
The MoF’s turning down of Westports’ request for a second 5-year extension of its ITA was a disappointment, which we estimate took 10 sen away from our DCF, and will raise the effective tax rate for FY15-19. The rejection may be related to Malaysia’s fiscal needs post the crude oil price decline. Westports will likely appeal the decision in the future, as past appeals had been successful.
Moving towards a container tariff hike
During its analyst briefing yesterday, we sensed that Westports was confident in its ability to secure a tariff hike for implementation in early-2016 at the latest. Westports had asked for a minimum hike of 50%, although the actual hike is expected to be below this. We do not expect a tariff hike of less than 20%, and believe that 30% is highly possible.
Source: CIMB Daybreak - 12 February 2015
Target RM4.53 (Stock Rating: ADD)
Westports’ full-year core net profit was 5% above expectations, on the back of slightly higher-than-expected freight rates and a lower-than-forecast effective tax rate during 4Q14, while container volumes were in line. However, we lower our FY15-16 core EPS by 1-9% (due to upward revision in tax forecasts), and reduce our probability-weighted DCF target price, as the MoF has turned down Westports’ application for an extension of its Investment Tax Allowance (ITA). We maintain our Add call as we are confident that the company will successfully secure an increase in container handling tariffs, and because the Ocean Three alliance started operations in January and may contribute a net 0.5m teu increase in transhipment (t/s) volumes to Westports this year.
Highlights of FY14
Westports reported a full-year core net profit of RM524m, up 26% yoy, due to a 12% rise in container volumes, a 1.1% rise in average container tariffs, a 4.3% pts fall in the effective tax rate (to 11.5%) as more ITA was used up, and the cessation of the payment of fees to the major shareholder which amounted to RM40m in FY13. Costs rose in line with revenue growth, so gross margin was flat at 62%. Container volumes rose evenly across both t/s and gateway cargoes. From a trade lane perspective, intra-Asia and Europe trades showed solid 10% yoy volume growth in FY14, the smaller Australasia trade enjoyed strong 30% volume growth as the CMA CGM group used Westports to tranship more Australian cargoes, while the African volumes were hurt by the Ebola outbreak.
Non-approval of ITA a small disappointment
The MoF’s turning down of Westports’ request for a second 5-year extension of its ITA was a disappointment, which we estimate took 10 sen away from our DCF, and will raise the effective tax rate for FY15-19. The rejection may be related to Malaysia’s fiscal needs post the crude oil price decline. Westports will likely appeal the decision in the future, as past appeals had been successful.
Moving towards a container tariff hike
During its analyst briefing yesterday, we sensed that Westports was confident in its ability to secure a tariff hike for implementation in early-2016 at the latest. Westports had asked for a minimum hike of 50%, although the actual hike is expected to be below this. We do not expect a tariff hike of less than 20%, and believe that 30% is highly possible.
Source: CIMB Daybreak - 12 February 2015
