Kenanga Research target price for Westports at RM2.90

by **Cals** Thu 17 Oct 2013, 01:21

Published: Wednesday October 16, 2013 MYT 3:54:00 PM
Updated: Wednesday October 16, 2013 MYT 3:57:12 PM
Kenanga Research target price for Westports at RM2.90

KUALA LUMPUR: Kenanga Investment Research has a target price of RM2.90 forWestports Holdings Bhd, which is 40 sen above its retail price of RM2.50.
The operator of Wesports is scheduled to be listed on Friday and the research house see long term value with sustainable growth.
Westports Holdings has grown its market share of container traffic in Port Klang to 69% since 1996 and is well-positioned to grow further in the long-term.
Kenanga Research said the company plans to potentially bump up their capacity from 9.5 million twenty-equivalent units (TEUs) annually to 16 million TEUs annually in the next 10 years, representing a 68% increase in capacity.
“With the higher than average operational efficiency which also results in superior margins coupled with a favourable shift in the container industry, we believe that Westports Holdings offers a long-term investment proposition.
“At a target price of RM2.90 based on DDM, we believe that investors should accumulate this stock as it gives a decent dividend yield (FY14: 3.5%) with sustainable long-term growth,” it said.
Kenanga Research sees a shift in global container trade to the Far East region and the South East Asian container trade is also expected to grow above the global growth rate as the ASEAN Economic Community (AEC) goes on line in 2015.
It believes the change in the container industry is favourable to Westports Holdings with higher container volume growth expected in Port Klang and Malaysian ports as a whole.
The research house said another trend is the shift of shipping liners’ preferences for larger container ships to achieve higher economies of scale to improve their profitability.
Westports, it said, has sufficient berth depth and top-notch port infrastructure to handle larger vessels due to the continuous investments in their port infrastructure. This will make more shipping liners preferring Westports Holdings as a transhipment or import/export hub over its peers moving forward.
“Using a two-stage dividend discount model based on (i) first stage growth rate of dividends per share of 10% from FY15 to FY22, (ii) terminal growth rate of 1.0%, (iii) cost of equity of 7.3%, and (iv) beta of 0.6, which is the average adjusted beta of NCB and Bintulu Port, its peers listed on Bursa Malaysia, we derived a target price of RM2.90 a share, indicating a potential upside of 16.1% from the IPO price of RM2.50 a share,” said the research house.
At the IPO price, Kenanga Research said the FY14 dividend yield is expected to be at 3.6% based on an assumption of 75% payout ratio, which is reasonable given that it is still a growing company with more capacity expansions plans moving forward.
“We believe that investors should accumulate this stock due to its (i) decent dividend yield, (ii) sustainable growth on the back of capacity expansions, and (iii) top class efficiency with superior cost management,” it said.