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Pressure on Westports
TIN news: Westports Holdings Bhd is feeling the effects of the slowdown in the economy as it wrapped up its 2015 financial year with a reduction in earnings in the final quarter.
An analyst said that among the factors that may determine its fortunes this year are ongoing merger activities, the prevailing expected slowdown in the global economic growth and new shipping alliances.
“While the group will retain its cost competitiveness in light of the weak currency, overall throughput growth may be flattish. Additionally, current mergers involving several majors may alter existing shipping alliances. So, earnings forecasts on the company may be readjusted as a result,” said an analyst at a bank-backed research house.
In a filing with Bursa Malaysia on Wednesday, the group reported a net profit of RM132.55mil for the fourth quarter ended Dec 31, 2015 (4Q15) compared to RM139.80mil a year ago.
It posted a revenue increase to RM477mil during the quarter compared to RM384.49mil in 4Q14.
The group is forecasting a slower throughput growth this year partly due to an increase in overall capacity. Phase one of Westports’ Container Terminal 8 (CT8) expansion will be fully operational by the middle of this year, Westports chief executive officer Ruben Emir Gnanalingam said in a statement yesterday.
The RM1bil investment in CT8 will increase the group’s total container handling capacity to 13.5 million twenty-foot equivalent units (TEUs) per year.
For 2015, the group’s total container volume reached an all-time high of 9.05 million TEUs compared to 8.37 million in 2014, the group said in the statement.
However, Westports added that its container throughput growth would not be as high as in 2015 due to the sluggish economic outlook.
The group’s main advantage lies in its extra capacity as well as cheaper rates. According to a recent note by RHB Research, the cost of handling a transhipment container at Westports was 53% lower compared to the Port of Singapore, its nearest regional competitor.
However, with its current utilisation of around 80% and with new capacities coming on stream later this year, the prospect of an economic slowdown may affect the overall shipping volume.
Last month, the International Monetary Fund had revised downwards its global trade growth forecast to 3.4% for this year and 4.1% for 2017.
In a related development, members of the Ocean 3 Alliance, which consists of CMA CGM SA, China Shipping Container Lines Co Ltd (CSCL) and United Arab Shipping Co (UASC), are in the midst of major corporate exercises.
CMA CGM is acquiring Singapore’s Neptune Orient Lines Ltd, while CSCL is set to merge with China Ocean Shipping Group Co (COSCO), a member of the CKYHE alliance which counts Singapore as a main hub.
Some research houses have speculated that shipping alliances will impact the operations of Westports, something that the company has challenged.
In a Feb 1 note, Maybank Investment Bank Research said CMA CGM had clarified that it would adopt a dual-hub strategy to cope with the larger combined container volume following the Neptune Orient acquisition.
The research house also floated the possibility of Cosco joining the Ocean 3 alliance as a result of the merger with CSCL, which would be a major re-rating catalyst for Westports.
“Cosco’s entry would make Ocean 3 the biggest alliance in the world. However, we highlight that this is still premature and it will need anti-competition clearance from the authorities,” it said.
Westports share price fell to an 11-month low of RM3.62 on Jan 18 on the back of the uncertainty regarding the present shipping alliance. It has rebounded strongly since then, closing at RM3.95 on Feb 3.
An analyst said that among the factors that may determine its fortunes this year are ongoing merger activities, the prevailing expected slowdown in the global economic growth and new shipping alliances.
“While the group will retain its cost competitiveness in light of the weak currency, overall throughput growth may be flattish. Additionally, current mergers involving several majors may alter existing shipping alliances. So, earnings forecasts on the company may be readjusted as a result,” said an analyst at a bank-backed research house.
In a filing with Bursa Malaysia on Wednesday, the group reported a net profit of RM132.55mil for the fourth quarter ended Dec 31, 2015 (4Q15) compared to RM139.80mil a year ago.
It posted a revenue increase to RM477mil during the quarter compared to RM384.49mil in 4Q14.
The group is forecasting a slower throughput growth this year partly due to an increase in overall capacity. Phase one of Westports’ Container Terminal 8 (CT8) expansion will be fully operational by the middle of this year, Westports chief executive officer Ruben Emir Gnanalingam said in a statement yesterday.
The RM1bil investment in CT8 will increase the group’s total container handling capacity to 13.5 million twenty-foot equivalent units (TEUs) per year.
For 2015, the group’s total container volume reached an all-time high of 9.05 million TEUs compared to 8.37 million in 2014, the group said in the statement.
However, Westports added that its container throughput growth would not be as high as in 2015 due to the sluggish economic outlook.
The group’s main advantage lies in its extra capacity as well as cheaper rates. According to a recent note by RHB Research, the cost of handling a transhipment container at Westports was 53% lower compared to the Port of Singapore, its nearest regional competitor.
However, with its current utilisation of around 80% and with new capacities coming on stream later this year, the prospect of an economic slowdown may affect the overall shipping volume.
Last month, the International Monetary Fund had revised downwards its global trade growth forecast to 3.4% for this year and 4.1% for 2017.
In a related development, members of the Ocean 3 Alliance, which consists of CMA CGM SA, China Shipping Container Lines Co Ltd (CSCL) and United Arab Shipping Co (UASC), are in the midst of major corporate exercises.
CMA CGM is acquiring Singapore’s Neptune Orient Lines Ltd, while CSCL is set to merge with China Ocean Shipping Group Co (COSCO), a member of the CKYHE alliance which counts Singapore as a main hub.
Some research houses have speculated that shipping alliances will impact the operations of Westports, something that the company has challenged.
In a Feb 1 note, Maybank Investment Bank Research said CMA CGM had clarified that it would adopt a dual-hub strategy to cope with the larger combined container volume following the Neptune Orient acquisition.
The research house also floated the possibility of Cosco joining the Ocean 3 alliance as a result of the merger with CSCL, which would be a major re-rating catalyst for Westports.
“Cosco’s entry would make Ocean 3 the biggest alliance in the world. However, we highlight that this is still premature and it will need anti-competition clearance from the authorities,” it said.
Westports share price fell to an 11-month low of RM3.62 on Jan 18 on the back of the uncertainty regarding the present shipping alliance. It has rebounded strongly since then, closing at RM3.95 on Feb 3.