Westports Holdings Bhd’s approved new container terminal (CT) expansion project is viewed as a very long-term play for the group, thus ruling out any earnings accretive development over the next few years, Kenanga Research said.
In a note today, it said the total capital expenditures for Westports Phase 2 comprising eight terminals (CT10-17) would be RM10 billion, and the new CTs were expected to nearly double capacity to 27 million twenty-foot equivalent units (TEUs) from 14 million TEUs, spread over 20 years. The CTs were anticipated for full completion by 2040.
“The global supply chain is adjusting to a combination of factors, such as higher consumer demand for containerised goods in Western economies, lockdowns and a global supply chain adjustment adhering to COVID-19 precautionary measures,” it said.
Nevertheless, Kenanga Research noted that July yard utilisation rate was above 100 per cent due to lockdowns with no movement of local container as Westports charged lower rental compared to outside-ports warehouses.
It has maintained the target price of RM4.20 for the stock, based on 6.2 per cent discounting rate, 1.5 per cent terminal growth, and dividend payout policy of 75 per cent.
Echoing similar projection, AmInvestment Bank said only minimal progression was made during second quarter of 2021 (Q2) with regards to Westports’ expansion plan comprising CT10-17, which would double its container handling capacity to 28 million TEUs from 14 million TEUs.
“The land use conversion and negotiation with the government on the concession terms are still in progress,” it said, adding that the company would continue to boost its current capacity via its recently completed CT9 Container Yard Zone Z over the immediate term.
AmInvestment said Westports has also planned to add an additional 7.68-hectare container yard at CT8 by Q4 2021 amidst the current high utilisation at the yard.
“Apart from that, it has placed orders for 21 new rubber tyred gantry cranes for the new container yard while two replacement quay cranes delivery are expected to be delayed slightly to Q1 2022.
“We believe the throughput of seaports, Westports included, will continue to grow in 2021 as global trade recovery gains further momentum, backed by the reopening of economies, businesses and borders,” it said.
Looking beyond the pandemic, it projected the outlook for the port sector in the region would be resilient, underpinned by global trade and investments in the manufacturing sector that generate 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 United States-China trade war,” it said.
AmInvestment added that Westports has charted a long-term expansion plan to capitalise on these relocations.