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Saturday, May 10, 2014

Yet another long term play - Westport

Westports 's journey began in 1994 in Pulau Indah, Port Klang. Since the humble beginning, Westports has grown into the second busiest port in Southeast Asia by containers' volume handled. Due to its excellent port and logistics management, Westports currently accounts for 72% market share in Port Klang (the remaining 28% for Northport). 80% of the transhipment and 59% of the import/export business in Port Klang are handled by Westports. The major owners are the Gnanalingam family (43.2%) and Mr. Li Ka Sing who own a stake of 23.6% via Hutchison Port Holdings, the world biggest port operator.


The pulling factors are:
1) Natural advantages:
  • In the Straits of Malacca there are main competitors for Westports are Northport, Port of Tanjung Pelepas (PTP) and Port of Singapore (PSA). Other than Northport, these ports have natural deep water berth, which allows them to       accommodate large vessels. Northport has only 12m canal depth im comparison canal depth of at least 17m for Westports and the other two. This means Westports can handle bigger vessels of up to 18000 TEUs.
  • Westports is also naturally sheltered by Pulau Mat de Zin and this eliminates the need for costly artificial breakwaters. 
  • According to Drewry Maritime Advisors, the deviation of Port Klang, PTP and PSA from the main shipping route along the Straits of Malacca is approximately 12, 15 and 9 nautical miles, respectively. The lower the deviation, the more suitable a port's location is to operate as a transhipment hub.

2) Operating efficiencies:

  • Besides location, operating efficiency is very crucial for port operators because shipping liners opts for ports which are able to load and unload their container cargo fast as this allows them to maximize vessels utilization and reduce cost. Westports earns the recognition of one of the world’s highest productivity with more than 35 moves per hour (mph) per crane for vessels over 300metres as compared to industry’s average of 27 mph. Its terminal utilization is maintained at the optimum level of 76% which translate to the least waiting time for vessels (2-3 hours) while its peers, PTP and PSA, have rather high terminal utilization of close to 90% that implies average vessels’ waiting time of 12 hours. To note, for every hour a ship waits to unload its cargo, it will cost them USD10,000 per hour. Therefore, it is extremely material for port operator to maintain their terminal utilization at the optimum level.


















3) Low port tariff - Possible tariff hike?

  • Another competitive advantage of Westports is the attractive port tariffs offered to shipping liners; lowerst transhipment tariff rates in the region with huge discount of 50% to PSA's rate and 30% to PTP's rate. Despite the huge discount, it still managed to achieve relatively high EBITDA margin of 51% (PSA: 51% , PTP:46%). The tariff rates in Port Klang is set by the Transport Ministry and regulated by Port Klang Authority. Last tariff review was in 2002.






















4) Concession secured and capacity expansion in place

  • The port concession has been extended by another 30 years until 2054. With the commission of berth CT7 at end of 2014, Westports will increase its capacity from 9.5mil TEUs to 11mil TEUs per annum. The future CT8 and CT9 will enlarge the capacity to 16mil TEUs. The competitors PTP and PSA are also expanding to cater to new volume diverted from new alliances and to optimize terminal utilization respectively.



5) Proxy to growth in greater Klang Valley

  • Most of the industries in Malaysia are located in the greater Klang Valley. As long as the industries are growing, the port business should grow in tandem. The port business is a monopoly similar to airport whereby the port will continue to earn money even if the shipping lines slash their rates and compete amongst each other. 



Risk - P3 alliance?

  • The risk of reduced volume from its major customer CMA CGM after the formation of P3 long term alliance of world's three largest shipping liners with Maersk Line and Mediterranean Shipping is overrated. The P3 rationalisation plan from middle of 2014 will be minimal and involve only 200k TEUs which is 3% of Westport's total volume. This will be compensated by the allocation of more non-P3 alliance services for growing Intra-Asia, Asia-Africa and Asia-Middle East trade.




This stock is starting to gain some recognition from the investors of late as seen by the volume and price rise in the past week. As a start, I bought 1000 units of Westports at RM2.76. The huat fund looks like this now:
Financial assets at 09.05.2014

Name
Purchase Date
Purchase Price
Current Price
Unit
Current Value
P/L ex Dividend (%)
Dividend
P/L inc Dividend (%)
Cash
Hle-Broking


15618,78






Inari
24.02.14
2,30
2,83
10000
28300
23,2
72,5
23,5
Sunreit
04.10.13
1,40
1,37
5000
6850
-1,9
188,8
0,8
Cypark
22.10.13
2,17
2,88
3000
8640
32,6

32,6
Jaya Tiasa
24.04.14
2,74
2,7
2000
5400
-1,6

-1,6
Westport
09.05.14
2,77
2,77
1000
2770
0,1

0,1
Hovid
14.04.14
0,34
0,355
20000
7100
3,9

3,9
Total Stock
59060,00
79,1
%
Total cash
15618,78
20,9
%
Total
74678,78
Current profit
7761,27
Total profit
24678,78
49,4
%
Total dividend
642,92

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