10 things you need to know about Westports Holdings before you invest

Named after the Malacca Sultanate, the Strait of Malacca serves as one of the most important shipping routes in the world. It is strategically located between the Indian Ocean and the Pacific Ocean, linking major economies in East Asia to the Middle East, Africa and Europe.

For centuries, nations who were rich and powerful colonized Peninsula Malaysia to monopolize this trading route. They include the Portuguese in the sixteenth century, the Dutch in the seventeenth century, and the British in the eighteenth to twentieth century.

Today, the Strait of Malacca is the second busiest waterway in the world. It serves as the main route transporting vital commodities to rapidly growing economies in East Asia.

One of the most vital commodities is oil. According to the U.S. Energy Information Agency, an estimated 15.2 million barrels of oil passed through the Strait of Malacca every single day in 2013. It is transported from the Middle East to oil importing countries such as China, Japan and Korea. It is also the world’s second largest oil transit choke-point which accounts for a quarter of the world’s maritime oil trade.

As I write, there are three major ports located along the Strait of Malacca: Port Klang in Selangor, Port of Tanjung Pelepas in Johor, and Port of Singapore.

In this article, I’ll write about Westports Holdings Berhad (Bursa: 5246). It is one of the two operators at Port Klang which derives income from providing container handling services, conventional cargo services, and a wide range of other port services.

Here are the 10 things you need to know about Westports Holdings Bhd (Westports) before you invest:

1. On 25 July 1994, Westports obtained the license to operate the port for a period of 30 years, commencing from 1 September 1994 under a privatisation agreement with Port Klang Authority (PKA) and the government of Malaysia.

On 26 June 2014, Westports received notice from PKA for the extension of the port concession period for another 30 years starting from 1 September 2024 to 31 August 2054. This provides continuity of income and the assurance to make long-term investments in port infrastructure over the long-term.

2. Westports listed on the main board of Bursa Malaysia in October 2013. At that time, it had a total container handling capacity of 9.5 million TEUs a year. Since then, it has continuously embarked on a series of expansionary activities:

  • In 2014, Westports launched Container Terminal 7 (CT7). This added 1.5 million TEUs bringing Westports total container handling capacity to 11.0 million TEUs per annum.
  • In 2015, Westports embarked on the Container Terminal 8 (CT8) expansion plan. It includes the construction of a 600-meter wharf, 14 ship-to-shore cranes, back-of-terminal facilities, rubber-tyred gantry cranes, and terminal tractors and trailers. The CT8 expansion plan will be carried out in two separate phases.
  • In 2016, Westports completed Phase 1 of the CT8 expansion plan. It is fully operational as at November 2016 brining Westports total container handling capacity to 12.0 million TEUs a year.

Source: Annual Reports of Westports Holdings Bhd

3. As a result, Westports has achieved consistent growth in operating activities over the last three years. This is evident as:

  • Westports has increased its annual container volume handled from 7.5 million TEUs in 2013 to 9.9 million TEUs in 2016.
  • Westports has increased its number of vessels handled from 6,702 in 2013 to 9,627 in 2016.
  • Thus, Westports has improved its market share over the last three years. For instance, Westports has improved its market share in the Strait of Malacca from 14% in 2013 to 18% in 2016. Meanwhile, in Southeast Asia, Westports has improved its market share from 8% in 2013 to 10% in 2016.
 Containers Handled (million TEUs)No. of Vessels HandledMarket Share (Strait of Malacca)Market Share (ASEAN)
20137.56,70214% 8%
20148.48,65615%9%
20159.19,36217%9%
20169.99,62718%10%

4. Over the last four years, Westports has achieved a CAGR of 10.23% in Operating Revenues. It has increased from RM1.20 billion in 2012 to RM1.77 billion in 2016. The consistent growth in operating revenues was directly contributed by the continuous rise in various port activities as discussed in detail in Points 2 and 3.

Source: Annual Reports of Westports Holdings Bhd

5. Over the last four years, Westports has achieved a CAGR of 15.26% in Shareholders’ Earnings. It has grown from RM360.96 million in 2012 to RM636.98 million in 2016. This was contributed from higher operating revenues and stable profit margins achieved during the period.

Source: Annual Reports of Westports Holdings Bhd

6. Westports has achieved a five-year ROE average of 27.56% a year. This means, Westports has made, on average, RM27.56 in annual earnings from every RM100 in shareholders’ equity over the last five years.

 20122013201420152016
ROE24.3% 27.1% 29.0% 26.6% 30.8%

7. Over the last five years, Westports has generated RM3.40 billion in operating cash flows. It has raised RM1.09 billion in equities and net long-term debt. This has enabled Westports to spend RM1.05 billion on capital expenditures and another RM1.06 billion on expansionary activities to further develop its concession assets.

As a result, Westports has paid out as much as RM1.71 billion in dividends to its shareholders from 2012 to 2016.

8. Westports has a dividend policy to pay out not less than 75% of its profit after tax as dividends. Since its IPO, Westports has indeed maintained its dividend payout ratio at 75%. Thus, in tandem with growth in shareholders’ earnings, Westports has increased its dividend declared from RM306.90 million (RM0.09 in dividends per share) in 2012 to RM477.40 million (RM0.14 in dividends per share) in 2016.

Source: Annual Reports of Westports Holdings Bhd

As at 13 June 2017, Westports is trading at RM3.79 a share. If it is able to maintain a dividend per share of RM0.14 for the next 12 months, its gross dividend yield would be 3.61%. Westports declares dividend payouts on a semi-annual basis and pays its dividends in the month of March and August.

9. Moving on, the global container shipping industry is consolidating and is forming new alliances. For instance:

  • CMA CGM, Westports’ biggest customer, has acquired Neptune Orient Lines which operates under the APL brand. Thus, CMA CGM is now the third largest container shipping line in the world.
  • China Shipping Container Lines (CSCL) has merged with China Ocean Shipping Company (COSCO). Presently, COSCO Shipping is the flagship carrier of China.
  • Beginning April 2017, CMA CGM, COSCO Shipping, Evergreen, and OOCL will be operating under a new alliance known as Ocean Alliance. It is one of three mega shipping alliances in the world. As a result, it could potentially result in reallocation of some or a selected string of shipping services and thus influence the total container volume handled by Westports.

10. Despite new challenges, the board of directors remain confident as Westports will continue to focus on its strengths such as having the best-in-class service levels, competitive port charges, IT capabilities, and excellent responsiveness to customer requirements.

In addition, the management is currently undertaking the following expansion plans to enhance the competitiveness of its port:

  • Westports is embarking on Phase 2 of Container Terminal 8 expansion plan. It is expected to be completed by the end of 2017 and will increase its total container handling capacity from 12.0 million TEUs in 2016 to 13.5 million TEUs in 2017.
  • Westports has commenced Phase 1 of Container Terminal 9 expansion plan. This involves the construction of another 600-meter wharf. Upon full development, Westports will increase its total container handling capacity to 16.0 million TEUs.
Ian Tai is the founder of Bursa King, a data platform that empowers retail investors to build wealth through ownership of fundamentally solid stocks. It is an essential tool that helps investors unearth consistently profitable stocks from a database of over 900+ stocks listed in Malaysia. As a Malaysian with close family ties in Singapore, Ian publishes a series of newsletters on how anyone can invest profitability in both countries.

2 Comments

  1. Skyler

    June 14, 2017 at 10:36 am

    For investment in stocks overseas, how does fifth person mitigate or reduce risk of foreign exchange losses exceeding gains on investment/dividend return?
    Do you remit back dividend and investment disposal gains as and when you receive it as it is difficult to predict exchange rate or wait until you see a good rate then remit back all the dividend return/investment gain?

    • Rusmin Ang

      June 16, 2017 at 8:52 am

      Hi Skyler,

      One way is by hedging but it doesn’t make sense for retail investors to hedge our foreign investments as the cost can be quite high. It is also difficult to estimate forex rates and, thus, we swap any dividends or sales of investment back immediately.

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