Hot Stock Westports falls 5.4% amidst disappointment on tariff hike

by **Cals** Fri 07 Aug 2015, 23:59

Hot Stock
Westports falls 5.4% amidst disappointment on tariff hike

KUALA LUMPUR (Aug 7): Westports Holdings Bhd ([You must be registered and logged in to see this image.] Financial Dashboard) saw its share price fall as much as 5.4% following downgrades by several research houses, as the tariff hike announced yesterday was below expectations.
At 10.06am, Westports (fundamental: 1.45; valuation: 0.9) fell 23 sen or 5.4% to RM4.05, with some 2.7 million shares traded. The counter dipped as much as 24 sen or 5.7% to reach a low of RM4 earlier this morning, placing it among top decliners on Bursa Malaysia.
The Ministry of Transport yesterday announced that the hike will be implemented in two phases, with a 15% hike effective Sep 1, 2015, and another 15% hike effective Sep 1, 2018.
In a note today, CIMB Investment Bank Bhd downgraded the stock to “hold” from “buy”, and said the cumulative hike is approximately 26% spread over three years, which is marginally lower than the research house’s assumptions.
“As such, we trim our DCF (discounted cash flow)-based target price (TP) by 1%. We upgrade our FY15-17 EPSforecasts by 4% to 11%, and our FY19 estimate has been raised 20% upon the full-year implementation of the second phase of the tariff hikes.
“As the share price has reacted positively to our recent upgrade, we are downgrading the call back to ‘hold’, from ‘add’ previously,” said CIMB.
Similarly, AllianceDBS Research Sdn Bhd had also downgraded Westports to “hold”, with a lower TP of RM4.40, and said the two-stage hike was a slight dampener, as the research house was expecting a 30% hike effective Jan 1, 2016.
“We reduce our TP to RM4.40 based on sum-of-parts valuation, as the revised rates will only be 15% higher during our forecast period (instead of 30%).
“We still like the stock as a proxy to the ASEAN growth story, but we downgrade Westports to ‘hold’ because of limited upside to our target price,” it said.
In a contrast, MIDF Research indeed upgraded to port operator to a “buy” call from “neutral” with a higher TP of RM4.77 versus RM4.40 previously. The stockbroker said it was “pleasantly surprised” that the tariff hikes would occur over two phases.
It reckons that the step-up arrangement would provide better leverage for the ports operating within Port Klang to negotiate contracts with their clients as well as provide investors better visibility on earnings.
In addition, MIDF Research pointed out the potential awards of investment tax allowances (ITA) that could be obtained in FY16 ending Dec 31, which would reduce Westports’ tax rate substantially from 24% to 16%. And that its TP has not factored such potential.
(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)