This article first appeared in The Edge Financial Daily, on September 28, 2015.

Westports Holdings Bhd
(Sept 25, RM4.20)
Maintain buy call with a lower target price (TP) of RM5.26 from RM5.35 previously: The tariff hike has been postponed to Nov 1 from Sept 1 as decided by the Port Klang Authority. We on Aug 7 assumed that Westports needs at least a month to give its clients a notice before implementing the tariff hike.   

Slowdown in China’s economy has contributed to a slower pace in container growth by the Intra-Asia trade line, shrinking from 12.9% in the first half of 2014 (1H14) to 8% in 1H15. Contributions from the Asia-Africa trade line have entered into negative territory of 19% in 1H15 versus a gain of 16.2% in 1H14. 

The management remains unperturbed as 1H15 container volume grew by 10%, still of within its targeted annual growth of between 5% and 10%. As such, we maintain our throughput growth projection of 8.5% for financial year 2015 (FY15). 

Risks to our call include container trade volatility and stiff competition from regional ports. 

We tweak our forecasts as we think new tariff hikes will kick in from FY16 (we previously assumed in October). This leads to a dilution in FY15 earnings per share by 2%. 

We continue to like Westports’ business model of long-term sustainable, recurring and yet growing income. Hence, we maintain our “buy” call, but our TP is lowered to RM5.26 based on discounted cash flow estimates from RM5.35 after we changed our assumptions on tariff hikes. — HLIB Research, Sept 25