WESTPORTS Holdings Bhd will continue to see declines in the short term due to the negative impact of the Covid-19 pandemic on the shipping and port industries.
TA Securities analyst Tan Kam Meng noted that Westports’ relatively strong 1Q2020 earnings may not be repeated in the second quarter, as earnings then would be affected by the Movement Control Order (MCO) and the weak economic outlook.
“According to management, the total container throughputs in April will drop by 17% year-on-year (yoy). To make things worse, the throughputs in May could be lower than in April,” said Tan.
Affin Hwang Capital analysts Laila Razip and Loong Chee Wei gathered that Westports is looking at a contraction in volume of between 10% and 20% for 2020, and expected volume to only recover to 2019 levels by 2022 at the earliest.
“Management guided that the signing of a concession agreement for Westports’ expansion plan may only materialise in 2021 due to the current weak economic conditions and the change in government early this year,” they said.
They noted that Westports has received the approval from its shareholders for the expansion in the recent EGM, and is left with another three key condition precedents, namely the conversion of land use from residential to industrial, approval from the Ministry of Economic Affairs, and the signing of a concession agreement with the federal government to
undertake the expansion.
However, AmInvestment Bank noted that the outlook for the port sector in the region, including Malaysia, is resilient, underpinned by global trade and investments in the manufacturing sector that has generated tremendous inbound and outbound throughput for ports.
“There have been significant relocations of the manufacturing base by multinational companies out of China to the region due to the rising labour and land costs, exacerbated by the US-China trade war. Westports has charted a long-term expansion plan to capitalise on these.
“However, we are mindful of the soft patch ahead amidst a major slump in the world economy as well as world trade in the aftermath of the Covid-19 pandemic,” said the research house.
MIDF Research analyst Adam Mohamed Rahim concurred that the coming quarter will be tougher, due to the weak global demand slowing manufacturing activities in China for the quarter.
“As a result, more than 250 scheduled sailings will be withdrawn in 2QFY20 as carriers react to fading demand amidst the general shutdowns across many countries,” he said.
However, Adam continued to favour Westports, citing lower transhipment tariffs amongst its peers even after taking into account the second phase of tariff hikes in March 2019, as well as the extension of the Ocean Alliance to 10 years from its initial five years as reasons.
The extension of the Ocean Alliance until 2027 will see the effects from the shuffling of alliances, which saw a profound impact in the 2017 financial year, mitigated.
TA Securities maintained a sell call, lowering the target price to RM3.55 from a previous RM3.69. AmInvestment Bank and Affin Hwang Capital both maintain hold calls, with the former maintaining a fair value of RM3.81, while the latter increased the target price to RM3.50 from RM3.33. MIDF Research maintains a buy call, lowering the target price to RM4.03 from RM4.38.
At the 12.30pm close, Westports’ shares were last done at RM3.68, up three sen, with 907,100 shares changing hands. — May 8, 2020
