westports initiation reviewed - wch -...

SEE APPENDIX III FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

4 December 2013

PP16832/01/2013 (031128)

Malaysia Initiating Coverage

Westports Holdings Berhad In West, We Invest

High-quality resilient asset. We like Westports for the following reasons: (i) ASEAN container growth rate is among the world’s fastest; and (ii) Westports stands out among its regional peers given the quality and size of its assets, backed by a high ROE of 28% for FY13-14. Key catalyst will be its continuously solid quarterly earnings into 2H14 despite the commencement of the P3 alliance. Trading at 17.8x FY14 PER, its valuation is still below its regional peers’ 22x. We initiate with a BUY with a DCF-derived TP of MYR2.70 (implying 19x FY14 PER).

Grabbing a growing pie. Throughput growth at the Strait of Malacca is expected to outpace the global throughput growth in the near-to-medium term, owing to the rising trade on intra-Asia (include ASEAN and Middle East), Asia-Africa and Asia-Australasia routes. Being one of the three key transhipment ports at the Strait of Malacca, Westports is well-positioned to ride on this growth. Additionally, given its relatively low congestion level and competitive rates, we believe Westports will have a bigger slice of this growing pie.

Unperturbed by P3 alliance. The potential commencement of the P3 alliance in mid-2014 may see 4% of Westports’ total volume diverting to the Port of Tanjung Pelepas in Johor. However, the volume loss would be mitigated by new non-P3 services, which CMA CGM will introduce progressively in 2014-15. Hence, the net loss could be only 2% of Westports’ total volume, we estimate. We have already imputed for this in our earnings model.

Upside from tariff revision. We project a 3-year (FY13-15) EPS CAGR of 6%, based on our projected 3-year throughput CAGR of 7%. We also forecast a net dividend yield of 4.2% for FY14 on Westports’ dividend payout policy of 75%. Our target price of MYR2.70 is based on the DCF methodology premised on a 2% p.a. growth rate between 2025-54 and a WACC of 8.1%. Nevertheless, we still see upside to our valuation, coming from a potential container tariff hike, which we have yet to impute into our earnings model.

Westports – Summary Earnings TableFYE Dec (MYR m) 2011A* 2012A* 2013F 2014F 2015FRevenue 1,115.3 1,226.2 1,338.7 1,417.0 1,521.6 EBITDA 579.2 654.1 711.2 756.2 818.5 Recurring Net Profit 354.9 403.3 454.2 482.4 485.7 Recurring Basic EPS (sen) 10.4 11.8 13.3 14.1 14.2 EPS growth (%) 11.2 13.6 12.6 6.2 0.7 DPS (sen) NA NA 10.0 10.6 10.7 BVPS (MYR) 0.39 0.44 0.47 0.51 0.54

PER 24.3 21.4 19.0 17.9 17.8 EV/EBITDA (x) 16.1 13.8 13.1 12.6 11.5 Div Yield (%) 0.0 0.0 3.9 4.2 4.2 P/BV(x) 6.5 5.8 5.4 5.0 4.7 Net Gearing (%) 51.2 24.8 44.1 50.8 44.1 ROE (%) 26.7 27.1 28.3 28.0 26.3 ROA (%) 14.1 15.1 14.6 14.3 14.2 Consensus Net Profit (MYR m) na na 431.9 470.0 501.4 * Proforma earnings, exclude Management Service Agreement fees Sources: Company, Maybank KE

Buy (New)

Share price: MYR2.53 Target price: MYR2.70 (New)

Lee Yen Ling [email protected] (603) 2297 8691

Stock Information

Description: Malaysia’s biggest licensed container port operator Ticker: WPRTS MK Shares Issued (m): 3,410.0 Market Cap (MYR m): 8,627.3 3-mth Avg Daily Turnover (US$ m): 10.87 KLCI: 1,824.29 Free float (%): 31.8 Major Shareholders: % PEMBINAAN REDZAI SDN 42.4 HUTCHISON WHAMPOA LT 23.6 Key Indicators

Net cash / (debt) (MYR m): (546.8) NTA/shr (MYR): 0.43 Net Gearing (x): 0.4

Historical Chart

2.4

2.5

2.5

2.6

2.6

2.7

2.7

2.8

Oct-13 Oct-13 Nov-13 Nov-13 Nov-13 Nov-13 Nov-13

WPRTS MK Equity

Performance: 52-week High/Low MYR2.71/MYR2.5 1-mth 3-mth 6-mth 1-yr YTD Absolute (%) (0.8) - - - - Relative (%) (1.6) - - - -

of 48

Westports Holdings Berhad

Contents Page

Executive Summary 3

Investment Merits

1. Natural advantages 5

2. A consolidated transhipment industry 8

3. A dual hinterland market 12

4. ASEAN manufacturing hub 15

5. A resilient and profitable business 20

6. Other specific attributes 21

Other businesses 25

Financials 28

Valuations 34

Risk Factors 37

Assessment of P3 Impact 40

Financial Details 41

APPENDICES

Appendix I – Organisation Structure 42

Appendix II – Board of Directors and Key Management 43

of 48


EXECUTIVE SUMMARY

Licenced port operator. Westports Holdings Berhad (Westports) is one of the two licenced port operators at Malaysia’s largest port, Port Klang. The group’s earnings are mainly derived from the handling of container cargo (82% of FY12 revenue), followed by conventional cargo (10%), and marine (5%) and rental services (3%). The container business has grown rapidly on both transhipment and import/export traffics with a throughput split of 71:29 in FY12.

Long-term concession. Established in 1994, Westports has been in operation for 19 years. It is in the midst of extending its current concession expiry from 2024 to 2054, subject to two conditions: (i) completion of Container Terminal 6 (CT6; which was completed and commercialised in Mar 2013); and (ii) land reclamation of CT7-CT9 (to be completed by end-2013). We expect the Government to grant Westports the formal extension by early-2014.

Defensive earnings and cashflows. Westports’ container throughput has an uninterrupted growth since the start of its operations, except in 2009, at the tail-end of the global financial crisis. However, we note that, though the container throughput volume fell substantially in 2009 (-10% YoY), the group remained profitable with a net profit of MYR265m and operating cashflows of MYR315m (MYR332m in pg 20? Pls chk) in FY09. It saw a sharp recovery in the following year (FY10) with higher throughput volume (+25% YoY), net profit (+13%) and operating cashflow (+67%).

Strong growth potential. Westports still has landbank for future capacity expansion, which will see the group increasing its total container handling capacity to 11m TEUs p.a. by 2015 (+15% from the present capacity of 9.5m TEUs). Total potential capacity on its 535ha landbank is 16m TEUs (+69% from present). We also expect Westports to grow rapidly at Port Klang, gaining market share, as a result of its adjoining peer, Northport, having limited new capacity to expand.

Financials. We forecast a 3-year (FY13-15) net profit CAGR of 6% on the back of higher container throughput CAGR of 7% and a marginally higher EBITDA margin of 53-54% in FY14-15 (FY12: 53%) on higher economies of scale. We also project group net gearing to rise to 44% and 51% by end-FY13 and end-FY14 respectively due to its heavy capex in FY13-14 but to taper off to 44% by end-FY15. Based on a target net profit payout of 75%, we project net dividends of MYR341m and MYR362m in FY13 and FY14.

Valuations. Our target price of MYR2.70 is based on discounted cash flow (DCF) given Westports’ operating environment and steady cash generative nature. We still see upside to our earnings forecasts and valuation as we have yet to impute for potential container tariff revision. We estimate that every 1% increase in effective container tariff will boost bottomline by 1.6% and our DCF valuation by 1.5% (assuming the new rate is implemented in FY16).

Key risks. We deem a weaker global economy to be the biggest risk as it may dampen Westports’ container throughput growth. The other key risk, in our view, is the customer concentration risk as the top five customers account for a substantial portion of the group’s total revenue (at approximately 41% over the last three years). As for the impact from the P3 alliance, it is already accounted for in our earnings model.

of 48


Financials: At a glance …

Westports: Revenue breakdown by segment Westports: FY12 Revenue breakdown by segment (%)

789 915 1,009 1,090 1,160 1,254

97105

123142 145

150

5765

6475

7985

3231

3032

3233

0

200

400

600

800

1,000

1,200

1,400

1,600

FY10 FY11 FY12 FY13F FY14F FY15F

MYR m Rental Marine Conventional Container

Container 82%

Conventional10%

Marine5%

Rental3%

Westports: EBITDA, PBT and PAT margins Westports: Pretax profit (PBT) and net profit (PAT)

60.751.9 53.3 53.1 53.4 53.8

44.2 37.340.1 39.9 39.1 39.7

32.7 31.8 32.9 33.9 34.031.9

20253035404550556065

FY10 FY11 FY12 FY13F FY14F FY15F

% EBITDA PBT PAT

431 416 491 534 554 603319 355 403 454 482 486

11%

14%13%

6%1%

0%

2%

4%

6%

8%

10%

12%

14%

16%

0

100

200

300

400

500

600

700

2010 2011 2012 2013F 2014F 2015F

MYR m

Pretax profit: MYR m (LHS) Net profit: MYR m (LHS)Net profit: % change (LHS)

Westports: Capex spending Westports: Net debt and net gearing

71 507 448 661 401 181

(12%)

48%

(39%)

(55%)

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

0

100

200

300

400

500

600

700

2010 2011 2012 2013F 2014F 2015F

MYR mCapex: MYR m (LHS) Capex: % change (RHS)

71 680 369 707 876 8155%

51%

25%

44%51%

44%

0%10%20%30%40%50%60%70%80%90%100%

0100200300400500600700800900

1,000

2010 2011 2012 2013F 2014F 2015F

MYR m Net debt: MYR m (LHS) Net gearing: % (RHS)

Note: FY10-12 are pro-forma figures (excluded the fees under Master Service Agreement (MSA), which will be terminated in conjunction with the listing)

Source: Company, Maybank KE

of 48


MERIT 1: NATURAL ADVANTAGES

Strategic location

World’s second busiest waterway. Westports is situated in the Strait of Malacca, the world’s second busiest waterway after the English Channel. Being the shortest route that connects the South China Sea and the Indian Ocean, the Strait of Malacca is a vital corridor to main line operators (MLO) travelling on the busy Intra-Asia (includes Middle East and Oceania), Asia-Europe and Asia-Africa lanes. According to Drewry Maritime Advisors (Drewry), approximately 50,000 vessels pass through the Strait of Malacca annually, carrying an estimated 30% of global goods shipped.

Close proximity to major trade lanes. Westports is among the three hub ports that are closest to the major shipping trade lanes in the Strait of Malacca, with a distance of approximately 30 nautical miles or approximately an hour of sailing time. The other three rivals are: (i) Northport, adjacent to Westports; (ii) Port of Tanjung Pelepas (PTP) in Johor (on the southern tip of Peninsular Malaysia); and (iii) Port of Singapore Authority (PSA) in Singapore.

Key deep sea ports in the Strait of Malacca: Westports competes with PSA and PTP for transhipment volume

Pang Besar

Kedah

Sungei Petani

KelantanI

poh

Taiping

Perak

Temerluh

Mentakab

Bentong

Pahang

Raub

Bukit Fraser

Kuala Lipis

Cameron Highlands

JOHOR

Northport

Westports

PTPPSA

THAILAND

KUALA LUMPUR

Container terminal capacity (TEUs)

PSA 35.0m

Westports 9.5m

PTP 8.4m

Northport 5.0m

Source: Companies, Maybank KE

Established global and regional connectivity. Westports has connections to more than 350 ports around the world, providing customers with an efficient global and regional connection point along major trade routes. It is able to provide such connectivity through approximately 65 main line services calling at its port, complemented by approximately 70 feeder services, all of which are independently operated by 36 lines.

Wide radius transhipment traffic. In addition to the sea feeder, goods are also transported to Westports via other modes of transportation, such as rail, road and air freight. This provides Westports a wide outreach of transhipment traffic in the region, particularly from Bangladesh, India, Indonesia, Malaysia (East Malaysia, Penang, Johor), Myanmar, Singapore, Thailand and Vietnam.

of 48


Intra-Asia shipping route: Strait of Malacca offers the shortest way

Sources: CMA CGM, Maybank KE

Asia-Europe shipping route: Strait of Malacca offers the shortest way


Asia-Africa shipping route: Strait of Malacca offers the shortest way


of 48


Deep water port

Natural deep harbour. It is essential for hub ports to have a natural draught, as dredging cost can be expensive. To this end, the channel leading into Westports from the south (“southern approach”) has a depth of approximately 17 meters, which is more than sufficient to accommodate current generation vessels.

Dredging commitment from the Government. Given that Port Klang is Malaysia’s main gateway, the Port Klang Authority (PKA) is committed to deepening the entrance channel to Westports and is in the process of increasing the current depth to 18 meters (from 17 meters), to cater for the next generation of 18,000-TEU container vessels. Westports spent an average of MYR3m a year on dredging expenses over the last 3 years to maintain the depth of its berths.

Northport has a draught limit. Westports’ competitor in Port Klang is NCB Corporation, which operates Northport (an import-export and transhipment container terminal) and South Point (a multi-cargo terminal). Northport would essentially have the first pick of customers entering Port Klang via the northern approach but the limitation here is that the channel depth here is approximately 12 meters.

Two different routes into Port Klang: The southern approach to Westports and the northern approach to Northport

Che Mat Zin

Sources: Port Klang Authority, Maybank KE

Natural breakwater for protection. Protecting Westports from strong currents and also against possible damage from potential tsunamis is Che Mat Zin island, which provides natural shelter. This eliminates the need to construct costly artificial breakwaters.

of 48


MERIT 2: A CONSOLIDATED TRANSHIPMENT INDUSTRY

Three major players. The transhipment industry in the Strait of Malacca is characterized by an oligopolistic industry structure, whereby three players dominate 96% of the market – PSA, PTP and Westports – with Northport being a smaller player.

Transhipment market share. While PSA continues to dominate with an estimated 67% share of the transhipment market in 2012, what is notable is that its market share has gradually declined from 73% in 2004. This slack has essentially been taken up by PTP which has seen a 2-ppt gain in market share to 17% over the same period, but the largest beneficiary by far has been Westports, whose market share has almost doubled from 7% in 2004 to 12% in 2012.

Transhipment market share at Malacca Strait (2004) Transhipment market share at Malacca Strait (2012)

PSA Singapore

73%

PTP15%

Westports7%

Northport4%

Others (Johor port, Penang

port)1%

PSA Singapore

67%

PTP17%

Westports12%

Northport3%

Others (Johor port, Penang

port)1%

Sources: Ministry of Transport, Maybank KE Sources: Ministry of Transport, Maybank KE

Total throughput trends at Southeast Asia ports Three major players share similar throughput trends

13%

6%9%

14%

6%

-6%

13%

8%6%

-10%

-5%

0%

5%

10%

15%

0102030405060708090

100

2004

2005

2006

2007

2008

2009

2010

2011

2012

E

m TEUs

Total throughput: m TEUs (LHS)Total throughput: YoY growth % (RHS)

-30

-20

-10

0

10

20

30

40

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

% YoY Port Klang PTP Singapore

Sources: Drewry Maritime Advisors, Maybank KE Sources: Ministry of Transport, Maybank KE

of 48


Competes on pricing. Westports’ published transhipment tariffs are at a discount to its competitors: 27-30% discount to PTP’s and 49-52% discount to PSA. That Westports and PTP are able to charge lower rates to PSA is largely a function of lower costs in Malaysia, we believe. These include construction and labour costs. Space constraint in Singapore is also a determinant, coupled with the fact that PSA potentially has to incur heavy land reclamation costs.

Published transhipment tariffs: Westports offers the most competitive rates

Transhipment pricing gap between Westports and competitors (PTP: -27-30%, PSA: -49-52%)

140210 240

200

300 330290

440 470

0

50

100

150

200

250

300

350

400

450

500

20ft 40ft >40ft

MYR/moveWestport and Northport PTP PSA

30% 30% 27%

52% 52% 49%

0%

10%

20%

30%

40%

50%

60%

20ft 40ft >40ft

Discount: Westports vs. PTP Discount: Westports vs. PSA

Sources: Companies, Ministry of Transport, Maybank KE Sources: Companies, Ministry of Transport, Maybank KE

Tight capacity. Capacity utilization of Westports’ two biggest transhipment peers, PTP and PSA, are high at 91% and 89% respectively (Westports: 77%). In view of their respective customers’ future demand, all players are currently in expansion mode. Hence, the risk of a more intense price competition in the near term is very unlikely, in our view.

Comparison of four key ports in the Strait of Malacca

Westports Northport PTP PSA

Current capacity (m TEUs) 9.5 5.0 8.5 35.0

Throughput volume: 2012 (m TEUs) 6.9 3.1 7.7 31.3

Capacity utilisation: 2012 (%) 76.8 61.8 90.6 89.4

Local:Transhipment 29:71 56:44 5:95 15:85

Other details

Quay length (meters) 4,000 2,679 4,300 15,500

Water depth alongside (meters) 15.0-17.5 11.0-17.0 15.0-17.5 14.8-16.0

Number of container berths 14 6 12 52

Number of quay cranes 43 26 44 188

Sources: Companies, Maybank KE

of 48


Peers’ capacity growth. Based on our estimates, PTP’s capacity will grow at a 3-year CAGR of 12% until 2014 while PSA will grow at a 9-year CAGR of 4% until 2020. PTP’s capacity growth rates may appear higher than its peers but we note that PTP’s capacity growth is to cater for its key anchor customer’s future growth (i.e. Maersk). Additionally, PTP’s total new capacity of 2m TEUs p.a. represents only 4% of the total current capacity in the Strait of Malacca.

Proposed expansions by PTP and PSA Capex

(MYRb) Construction

period New capacity

(m TEUs) Total capacity by year of completion (mTEUs)

Implied CAGR p.a.

PTP 1.4 2013-2014 2.1 10.6 12%

PSA (Pasir Panjang Terminal- phase 3 & 4) 8.8 2012-2020 15.0 50.0 4%

Sources: Port Technology, Seatrade Global, Maybank KE

Competes on operating efficiency. Westports also competes on productivity, which is one of the major parameters considered by shipping liners, for faster turnaround time translates to lower costs.

According to Drewry Maritime Advisors (Drewry), Westports’s berth productivity fares better than both PTP and PSA. Additionally, all three players rank high in terms of crane productivity with little differentiation. To Westports’ credit, it holds one of the world’s highest records for crane turnaround time, with >35 moves per hour per crane (mph) for large vessels (of 300m in length), as compared to the industry standard of 27.

Comparison of operational efficiencies Crane productivity. This measures the container handling rate per quay crane (or moves per hour per crane). A “move” generally entailing movement of cargo from either a vessel to the container yard or from the container yard to a vessel for subsequent transportation. High crane productivity normally leads to faster vessel turnaround while in port and therefore lowers costs for each shipping line.

Berth utilisation. This measures the number of vessel arrivals at a berth each year. Normally, high berth productivity for a port operator is positive in that more revenue will be generated per meter of quay.

Crane productivity in 2011 (‘000 TEU per crane per year) Berth productivity in 2011 (TEU per meter per year)

2,231

1,745 1,731 1,660 1,660

1,211 1,195 1,138

Shan

ghai

PTP

Wes

tpor

ts

Sala

lah

Sing

apor

e

Dub

ai

Nor

thpo

rt

Busa

n

219

169149 147 145 137 134

118

Shan

ghai

Wes

tpor

ts

Dub

ai

Busa

n

PTP

Sing

apor

e

Sala

lah

Nor

thpo

rt

Westports’ operational track record. Westports routinely achieves 70-100 mph per vessel on main line vessels, which are mainly large vessels (over 300 meters in length) and exceeds 50 mph per vessel on feeder vessels. Notably, it routinely exceeds 35 mph per crane for large vessels (over 300 metres in length) and it achieved a record of 734 mph with a deployment of 9 cranes on a single vessel. The following table sets forth certain information on notable achievements in terms of its crane productivity.

Year Vessel Record moves per hour (mph) No. of cranes deployed

2011 CSCL Pusan 734 9

2009 CMA CGM Orfeo 665 9

2006 CMA CGM Rossinni 421 7

2006 CMA CGM Puccini 452 8

2006 CMA CGM Bizet 456 8

Sources: Drewry, Company, Maybank KE

of 48


Strategic tie-ups. The industry consolidation has also intensified with strategic tie-ups between the port operators and the other port operators/MLOs. For example, Hutchison Port Holdings (Hutchison), the world’s biggest port operator, has a 32.5% strategic stake (pre-IPO) in Westports. Meanwhile, Maersk, the world’s biggest MLO, has a strategic 10% stake in PTP.

The Hutchison connection. Hutchison, which has a global network (52 ports across 26 countries and 6 continents), offers its shipping line customers options from a wide range of ports and in some cases, the opportunity to leverage on existing relationships with shipping lines in one region to support growth in the other regions.

Hutchison Port Holdings (HPH): Westports is part of Hutchinson’s worldwide network (52 ports in 26 countries)

ARGENTINA•Buenos Aires

MEXICO•Ensenada•Lazaro Cardenas•Manzanillo•Veacniz

PANAMA•Balboa•Cristobal

BAHAMAS•Freeport

AUSTRALIA•Brisbane•Sydney

VIETNAM•BA Ria Vung Tau

HONG KONG•Kwai Tsing•Tuen Mun

CHINA•Huizhou•Jiangmen•Nanhai•NIngbo•Shanghai•Shanghai-Pudong•Shantou•Xiamen•Yantian•Zhuhai-Baolan•Zhuhai-Jiuzhou

KOREA•Busan•Gwangyang

PAKISTAN•Karachi-West Wharf-Keamari Groyne

MYANMAR•Thilawa

THAILAND•Leem Chabang

MALAYSIA•Westports

INDONESIA•Jakarta

EGYPT•Alexandria•El Dekheila

TANZANIA•Dar es Salaan

SWEDEN•Stockholm

OMAM •Sehar

UAE•Ajman

SAUDI ARABIA•Dammam

UKFelixstoweHarwichLondon Tharnesport

POLAND•Gdyna

ITALY•Taranto

GERMANY•Duisbury

NETHERLANDS•Amsterdam•Rotterdam(Europahaven/Amazonehaven/Yanghtzehaven,Alexanderhaven)•Venlo•Moordijk

BELGIUM•Willebroek

SPAIN•Barcelona

Source: Europe Container Terminal, Maybank KE

Global: Top 10 container operators by throughput handled in 2011

72 65 57 54 53

25 19 13 10 100

1020304050607080

Hut

chis

on

APM

Ter

min

als

PSA

Inte

rnat

iona

l

DP

Wor

ld

CO

SCO

Gro

up

MSC

/ Ter

min

al In

vest

men

t (T

IL)

Chi

na S

hipp

ing

(CST

D)

Euro

gate

Han

jin

SSA

Mar

ine/

C

arrix

m TEUs

Sources: Drewry, Maybank KE

of 48


MERIT 3: A DUAL HINTERLAND MARKET

A big captive hinterland. Port Klang is also known as Malaysia’s national load center (handling 53% of Malaysia’s total container throughput in 2012), being the closest port to Malaysia’s heartland of industrial and commercial hubs in the Klang Valley (40km away). This ensures a stable and growing flow of local container/cargo through the port, providing an attractive base load of demand for shipping lines calling at Port Klang. Based on the census from Malaysia’s Department of Statistics, we estimate that this primary hinterland has a total population of 8m (or 29% of Malaysia’s total population).

Malaysia: Local throughput breakdown by port operators (2012)

Westports29%

Northport24%

Penang port16%

Johor port10%

PTP6%

Sabah port5%

Bintulu port3%

Kuching port3%

Others4%

Sources: Company, Ministry of Transport, Maybank KE

Secondary hinterland. Port Klang also has a secondary hinterland market, which includes the central part of Malaysia, such as the states of Negeri Sembilan and Pahang. Including the primary hinterland, the combined total population is approximately 10m (or 34% of Malaysia’s population), according to the prospectus.

Map of hinterland: Primary and secondary hinterland capture a combined 34% of Malaysia’s population

Source: Google Map, Maybank KE

of 48


Malaysia: Overview of local container volume at various federal ports (2012)

Port Klang(9,934 TEUs)

Penang (1,166 TEUs)

Johor(801 TEUs)

Kuantan(136 TEUs)

Bintulu(231 TEUs)

Kuching(232 TEUs)

Sabah(375 TEUs)

PTP (7,494 TEUs)

Sources: Ministry of Transport, Maybank KE

Malaysia: Overview of conventional cargo handled at various federal ports (2012)

Port Klang(145m tons)

Penang (29m tons)

Johor(26m tons)

Kuantan(16m tons)

Bintulu(41m tons)

Kuching(9m tons)

Sabah(28m tons)

PTP (116m tons)

Sources: Ministry of Transport, Maybank KE

of 48


High-yield segment. In addition to the big captive market, the hinterland segment is also very important to Westports as the port charges for local cargoes are much higher compared to that of transhipment. While the volume contribution to Westports’ total container volume was low at 29% in FY12, the contribution to total revenue was more significant at 43%.

Westports: Breakdown of container volume (FY12) Westports: Breakdown of container revenue (FY12)

Transhipment71%

Local29%

Transhipment57%

Local 43%

Sources: Companies, Maybank KE Sources: Companies, Maybank KE

Local: Higher ceiling rates. The ceiling rates at Port Klang for local container handling are 64% higher than transhipment. Based on our calculation, Westports’ actual local handling charge of MYR192/TEU in FY12 was a steep 85% premium to that of transhipment. As the costs of handling the containers are the same, this gives the local segment a much higher margin, potentially 10-ppt higher, we estimate.

Port Klang: Local container handling charges (regulated ceiling price)

20ft container 40ft container Westports’ actual charges in FY12

MYR/move MYR/move MYR/TEU

Local (a) 230 345 192

Transhipment (b) 140 210 104

Premium (a/b) 64% 64% 85%

Sources: Port Klang Authority, Company, Maybank KE

Highest-yielding container port. Port Klang’s local container handling rate is also the highest in Malaysia (around 30% higher than PTP), and this in turn has contributed in part to Westports’ EBITDA margin being the highest among container ports in Malaysia, and second only to Bintulu Port (which handles mainly LNG shipments).

Malaysia: Comparison of EBITDA margin in 2012; Among the container port operators, Westports had the highest margin

64%49% 46% 43%

30%

0%

10%

20%

30%

40%

50%

60%

70%

Bintulu Port (mainly LNG)

Westports PTP Suria Capital (mainly

conventional cargo)

NCB (Northport)

Source: Companies, Ministry of Transport, Maybank KE

of 48


Direct competition with Northport. Located next to each other, both Westports and Northport compete for the big captive hinterland market. Westports do not compete on pricing but rather on operational efficiencies – its efficiency parameters such as crane productivity and berth productivity fare better than that of Northport. This is attributable to Westports’ linear berths (vs. Northport’s non-uniform berths), which allows for greater flexibility in berthing vessels.

Moreover, Westports’ container gate system and streamlined customs processes enable hauliers to enter and exit in approximately 20 minutes on average, allowing them to schedule more trips a day.

Westports vs. Northport: Crane and berth productivity (2011)

Westports vs. Northport: Capacity utilisation rates (%)

1,731

1,195

Westports Northport

Crane productivity (TEU per crane p.a.)

169

118

Westports Northport

Berth productivity ('000 TEU per meter p.a.)

74% 76% 77%66% 64% 62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2010 2011 2012

Westports Northport


The preferred port at Port Klang. Before Westports commercialized its first container terminal in 1997, Northport was the sole container operator at Port Klang – its first container terminal commenced operations in 1972. From a zero base in 1996, Westports has seen its total market share of local container cargo at Port Klang increased to 59% as at the end of 2012. The steep market share gain seen in 2012 (+10-ppt YoY) was due to a faster growth from its existing customers and the addition of a new O&D customer.

Westports: Container market shares at Port Klang

48 4953

58 61 62 61 6367

6960 6367

73 75 74 74 75 77 78

33 34 36 39 41 44 41 4449

59

0

10

20

30

40

50

60

70

80

90

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

%Total Transhipment Local

Source: Companies, Ministry of Transport, Maybank KE

of 48


Port Klang: Local throughput - Westports has caught up with Northport over the years

Port Klang: Local throughput growth - Westports grew at the expense of Northport

0

500

1,000

1,500

2,000

2,500

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'000 TEUsWestports Northport

9-year CAGRWestports: 12%Northport: 2%

-20

-15

-10

-5

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012

% Westports Northport


Growth partly driven by Northport’s capacity constraint. Going forward, we expect sustained local container volume growth for Westports, driven by positive local import/export demand, but also because Northport is facing capacity constraints with limited landbank for future expansion. As a result, we believe Westports will see higher prospective growth in the local container segment.

Northport: Limited future expansion. Northport’s container terminal 4 (CT4) commenced operations in Jul 2013 with an additional capacity of 500,000 TEUs p.a. and a depth alongside of 17 meters (vs. 11-15 meters for its container terminals 1-3). This represents a mere 3% increase to total Port Klang’s container handling capacity. Beyond CT4, Northport has almost zero room for future expansion. It is now looking to convert its conventional cargo berths (berth 15-16) to container terminals.

Northport: Container terminals (berth 8A, berth 8-21) and conventional cargo terminals (berth22-25)

Sources: Company, Maybank KE

Berth 8A

of 48


MERIT 4: ASEAN MANUFACTURING HUB

An aspiring manufacturing powerhouse. Multinational corporations (MNCs) have in recent years gradually relocated their manufacturing activities from China to ASEAN. This is because the business environment in ASEAN (particularly Indonesia and Vietnam) has become relatively more conducive with their plentiful supply of cheap labour, young demographics and improved infrastructure.

ASEAN: Total trade value on the rise (USDm) Foreign Direct Investment (FDI) inflows (% of Global FDI inflows): FDI leaving China for ASEAN

-

500

1,000

1,500

2,000

2,500

3,000

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

USDm Exports Imports Total Trade

10%

8% 9%

4%

6%7%

0%

2%

4%

6%

8%

10%

12%

14%

1995 1997 1999 2001 2003 2005 2007 2009 2011 2012

China ASEAN

Sources: ASEAN Secretariat, Maybank KE Sources: ASEAN Secretariat, UNCTAD, Maybank KE

More to look forward to. The visible shift in manufacturing to ASEAN has just taken off in the last 3-4 years and we think there is more to look forward to as the less developed ASEAN countries (i.e. Philippines, Cambodia, Myanmar and Laos) recognise the need to adopt more FDI-friendly policies and invest in their infrastructure (i.e. transportation and power supply) to accommodate this shift.

ASEAN-6 vs. China: ASEAN has the huge supply of labour force and a rising consumer market

ASEAN-6

Indonesia

Thailand

Malaysia

Singapore

Philippines

Vietnam

China

Population (m) 249 67 29 5 104 92 1,343

Population: <65 years old (%) 94 91 95 92 96 95 91

Nominal GDP (USDb) 895 377 307 268 241 138 8,250

PPP (USDb) 1,212 492 646 321 417 327 12,380

FDI-to-GDP (%) 2.3 2.4 4.2 20.6 1.1 6 3.1 Global competitiveness index 50 38 25 2 65 75 29

Ease of doing business 128 18 12 1 138 99 91

Corruption perceptions 118 88 54 5 105 123 80 Major industries Machinery,

petrochemicals, textile, apparel,

food

Automobile, electronics,

petrochemicals

Electrical & electronics,

petrochemicals, food, solar products

Electronics, biomedical,

petrochemicals, precision

engineering

Electronics, textile,

apparels, tobacco,

food

Textiles, apparels,

food, electrical

Steel, energy,

automobile, chemical fertilisers

Sources: World Bank, World Economic Forum, IndexMundi, Maybank KE

of 48


Greater demand for port infrastructure. We expect the demand for transhipment ports within the region to rise as goods manufactured (i.e. auto parts, clothing, solar panels) within ASEAN will need to be shipped to the region’s transhipment hubs where the main line vessels call. From the Strait of Malacca, the containers will then be carried to the other hub ports or destination ports.

Increasing intra-Asia and intra-ASEAN trades. In 2011-2012, Westports saw accelerated throughput growth that involved Asia, particularly ASEAN-Middle East and ASEAN-East Asia. The trade within Asia has also accelerated as a result of the downturn in demand from the US and Eurozone. Additionally, given the growing consumer market and the rise of the urban middle class in ASEAN, we believe there will be a continuous uplift to the intra-ASEAN trade. The ASEAN Economic Community (AEC), coming on stream in 2015, will further facilitate and grow intra-ASEAN trades and services.

ASEAN: Trading partners’ share of ASEAN trade value (2011)

Intra-ASEAN25%

China12%

Japan11%EU-27

10%North America9%

South Korea5%

India3%

Australia2%

Others23%

Sources: ASEAN Secretariat, Maybank KE

Headroom growth from containerization. We also see medium-term growth from the increasing containerization of traditionally break-bulk cargoes among the developing nations. According to Drewry, around 70% of ASEAN’s general cargo trade was containerized in 2011, compared to 75% and 85% for Western Europe and North America respectively. Additionally, the Middle East and South Asia still have relatively low containerization levels of 64% and 59% respectively.

Global: Comparison of cargo containerisation levels

85%

70%

75%

64%

70%

59%

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

North America ASEAN Western EuropeMiddle East Far East South Asia


of 48


Drewry’s expectations. According to Drewry, ASEAN is the third busiest region in the world with a total of 83m TEUs handled in 2011, after Northeast Asia (231m TEUs) and Western Europe (92m TEUs). Total container throughput in ASEAN grew at a robust 9-year (2002-2011) CAGR of 8% and Drewry projects a 3-year (2012-2015) CAGR of 6%. Based on Drewry’s forecasts, ASEAN will overtake Western Europe to be world’s second busiest region by 2015.

Global container throughput at ports: Breakdown by major region (2011)

Northeast Asia39%

Western Europe

16%

ASEAN14%

North America

8%

Latin America7%

Middle East6% Others

10%


Container throughput growth rates: Drewry projects a 3-year (2012-2015) CAGR of 6% for ASEAN

-15

-10

-5

0

5

10

15

20

25

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

E

2013

F

2014

F

2015

F

%Far East Western Europe ASEAN World

ASEAN2012E: 5.7%2013F: 6.1%2014F: 6.1%2015F: 5.9%


of 48


MERIT 5: A RESILIENT AND PROFITABLE BUSINESS

High resilience. Throughout 1990-2012, global container throughput withstood most of the economic adversities with positive growth rates of between 2-16% p.a.. The only year where the global container throughput saw a fall (-9% YoY) was in 2009, at the tail-end of the Global Financial Crisis. Even then, the container throughput rebounded strongly in 2010 in all regions with global container throughput being 4% higher than pre-crisis contraction level in 2008.

Global: Container throughput - Uninterrupted growth until 2009

Global: Container throughput – A sharp rebound after global financial crisis in 2009

-20-15-10-50510152025

020406080

100120140160180

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

%m TEUsGlobal container trade: m TEUs (LHS) Global container trade: YoY growth % (RHS)

Asian Financial

Crisis

Dotcom bubble

SARS

Global Financial

Crisis

(13%)(14%)(8%)

(6%)

18% 13% 10% 14%

-15%

-10%

-5%

0%

5%

10%

15%

20%

Northeast Asia ASEAN Western Europe North America

2009 2010

Sources: UNCTAD, Clarkson, Maybank KE Sources: Drewry, Maybank KE

Westports’ resilience. Similarly, Westports’ container throughput also demonstrated a high resilience until 2009 (total throughput: -10% YoY, transhipment: -9%, local: -14%). This was immediately followed by a strong rebound in 2010 (total: +25%, transhipment: +26%, local: +22%).

Profitable despite crisis. Though there was a negative impact to earnings in 2009, Westports remained profitable with a net profit of MYR265m (-18% YoY) while operating cashflows (MYR315m, -47% YoY) remained ample to support sustained dividends.

Defensive industry structure. In our view, port operators at the Strait of Malacca will always remain profitable as long as the industry remains highly consolidated with a utilisation of >60%. In 2009, the capacity utilisation at the Strait of Malacca was 70%.

Westports: Historical throughput trends Strait of Malacca: Container capacity utilisation (%)

(9%)

26%

16%5%

(14%)

22%

13%17%

-20%

-10%

0%

10%

20%

30%

40%

2004 2005 2006 2007 2008 2009 2010 2011 2012

Transhipment throughput growth (%)Local throughput growth (%)

71%

75%

82%80%

76%79%

78%

70%

74%77%

60%

63%

66%

69%

72%

75%

78%

81%

84%

0

10

20

30

40

50

60

70

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

m TEUsThroughput: m TEUs (%) Utilisation: % (RHS)

Sources: Company, Maybank KE Sources: Drewry, Maybank KE

of 48


MERIT 6: OTHER SPECIFIC ATTRIBUTES

Long-term concession

Extending concession expiry to 2054. Westports’ 30-year licence expires in Jul 2024 but it is exercising its option to extend the concession for another 30 years (until 2054) by fulfilling the two stipulated conditions: (i) completion of construction works for CT6 and to be fully operational by Jan 2014; and (ii) completion of land reclamation works and incidental works for CT6-CT9 by Jan 2014.

Formal extension to materialize by early-2014. Westports is on track to meet the stipulated terms: (i) CT6 was completed and commercialized in Mar 2013; and (ii) the land reclamation works for CT7-CT9 are targeted to complete by end-2013, ahead of the imposed deadline. Upon the fulfillment of the conditions, Port Klang Authority (PKA) will conduct a physical inspection and a formal extension of the concession is expected by early-2014.

Expansion potential

In an expansion mode. With the commencement of its 300-meter CT6 in Mar 2013, Westports’ current capacity stands at 9.5m TEUs p.a. (+27% from 7.5m TEUs in 2010). It is in the midst of constructing a 600-meter CT7, with Phase 1 targeted for completion in 2H14 (+9% to 10.3m TEUs) and Phase 2 in 2015 (+6% to 11m TEUs).

Expansion beyond CT7. Beyond CT7, Westports has plans to increase its capacity to approximately 16m TEUs p.a. (+45% post-CT7) via: (i) construction of two 600-meter container terminals (CT8 and CT9) with an additional 1.5m TEUs capacity each; and (ii) the addition of another 11 quay cranes at its existing berths to give another 2.2m TEUs handling capacity. The adding of CT7-CT9 is expected to extend its container berths’ quay length to 5.8km (from 4km presently) and double its container area to 307ha (from 138ha presently).

Timing of future expansion. The timing of expansion beyond CT7 depends on the market situation. Westports also enquires after its existing customers of their outlook to ensure it has the capacity to cater for its customers’ future needs.

Westports: Current and prospective capacity

9.5m 10.3m 11.0m 12.5m 14.0m 16.2m

9%

6%

13%12%

17%

0%2%4%6%8%10%12%14%16%18%

02468

1012141618

Existing (CT1 - CT6) CT7 - Phase 1 (2H14)

CT7 - Phase 2 (2015)

CT8 (timing uncertain)

CT9 (timing uncertain)

Additional quay cranes at CT1-CT6 (timing uncertain)

m TEUs Total capacity p.a. : m TEUs (LHS) Capacity increase : % (RHS)


of 48


Westports: Container terminal layout

Support facilities(Future)

Future expansion (CT 7 - CT 9) Existing container terminals (CT 1 - CT 6) Break bulk terminal

Common terminal

Container main gate

Conventional main gate

CT9 CT8 CT7

Source: Westport, Maybank KE

Westports: Summary of container terminal (CT1-CT6) facilities Type Details

Capacity (m TEUs p.a.) 9.5

No. of berth 14

Berth length (meters) 4,000

Area (ha) Existing: Total 138ha (CT1: 16, CT2-CT6: 24 each)

Future: Additional 170ha (CT7: 52, CT8: 59, CT9: 59)

Depth alongside (meters) 15.0-17.5

Reefer points 1,236

Ground slots 29,985

Equipment (no.)

Quay cranes (twin lifts) 43

Rubber tyre gantry 125

Empty stackers 15

Reach stackers 13

Prime movers 332

Trailers 347

Source: Westports, Maybank KE

Next to customs-free zone. Westport also enjoys easy and convenient access to Port Klang Free Zone (PKFZ), an integrated 405ha customs-free commercial and industrial zone next to the port where international cargo distribution and consolidation, procurement, export manufacturing and other cargo value added services are undertaken.

of 48


Superior growth track record

Locally: Fastest-growing port. Between 2003-2012, both Westports’ transhipment and local container throughput enjoyed rapid 9-year CAGR of 14% and 12% respectively. Westports’ growth has also outpaced its Malaysian peers throughout the years and as a result, Westports today commands a 72% market share in Port Klang and a 34% market share of Malaysia’s total container handled in 2012.

Westports: Historical container throughput handled; Transhipment has a bigger market

Westports: Market share gains in Malaysia over the years (in terms of total container throughput handled)

1,550 1,702 1,962 2,596 3,074 3,531 3,2114,055 4,694 4,907

751 854 9491,069

1,2381,436

1,240

1,5111,710

2,004

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'000 TEUs Local Transhipment

32%

72%

0

10

20

30

40

50

60

70

80

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

9M13

% % of Malaysia % of Port Klang

Sources: Company, Maybank KE Sources: Company, Maybank KE

Malaysia: Historical total container volume growth; Westports’ growth is higher than its Malaysia peers

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012

Westports NorthportPTP Malaysia average (total 11 ports)

Sources: Ministry of Transport, Companies, Maybank KE

Malaysia: Historical transhipment container volume growth Malaysia: Historical local container volume growth

-10%

0%

10%

20%

30%

40%

2005 2006 2007 2008 2009 2010 2011 2012

Westports NorthportPTP Malaysia average

-15%

-5%

5%

15%

25%

35%

45%

2005 2006 2007 2008 2009 2010 2011 2012

Westports NorthportPTP Malaysia average

Sources: Ministry of Transport, Companies, Maybank KE Sources: Ministry of Transport, Companies, Maybank KE

of 48


Southeast Asia: Fastest-growing too. Comparing Westports to its transhipment hub peers in the Strait of Malacca, Westports also stands out in terms of total container throughput growth.

Southeast Asia: Historical total container volume growth; Westports’ growth is higher than its Strait of Malacca peers

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

2005 2006 2007 2008 2009 2010 2011 2012

Westports PTP PSA

Sources: Ministry of Transport, Companies, Maybank KE

Globally: Among the busiest. According to Shanghai International Shipping Institute, Port Klang, as a whole, was ranked the twelfth busiest port in the world in 2012, in terms of the total throughput handled. Among the top eighteen ports in the world, only six ports registered commendable throughput growth of above 5% YoY in 2012: Dalian (+26% YoY), Qingdao (+11%), Ningbo-Zhoushan (+9%), Westports (+8%), Tianjin (+6%) and Singapore (+6%).

Top 18 global container ports (2012): Westports stands out in terms of total throughput handled and growth (+8% YoY)

3%

6%

-5%

2%5%

9%

2%

11%

2%

6%

0%4%

2%-1% 0%

2%

26%

3%

8%

-10%-5%0%5%10%15%20%25%30%

05

10152025303540

1: S

hang

hai

2: S

inga

pore

3: H

ong

Kong

4: S

henz

en

5: B

usan

6: N

ingb

o-Zh

oush

an

7: G

uang

zhou

8: Q

ingd

ao

9: D

ubai

10: T

ianj

in

11: R

otte

rdam

12: K

lang

13: K

aohs

iung

14: H

ambu

rg

15: A

ntw

erp

16: L

os A

ngel

es

17: D

alia

n

18: T

anju

ng P

elep

as

Wes

tpor

ts

%m TEUs Throughput: m TEUs (LHS) YoY growth: % (RHS)

Sources: Shanghai International Shipping Institute, Maybank KE

of 48


OTHER BUSINESSES

Conventional cargo handling

Rising volume. Total conventional cargo throughput at Westports has increased at a 5-year (2007-2012) CAGR of 5% p.a., with most of the growth contributed by the increase in liquid bulk volume and the number of vehicles handled, attributable to the shift in Roll-on Roll-off (RORO) handling from Northport to Westports in 2008.

High capacity utilisation. In 2012, the capacity utilisation rate for Westports’ conventional terminals (excluding RORO) was 79% while RORO was 17%. Given the containerization trend of dry bulk and break bulk cargoes, we think the volume growth of conventional cargo will be low. However, RORO could register a modest growth due to rising domestic demand.

Malaysia: Historical passenger vehicle import volume trend

14%

39%

24%

5%

(26%)

31% 30%

(7%)

36%

15% 12%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

'000 units Car import: '000 units (LHS) Car import: % YoY change (RHS)

Sources: Malaysia Automotive Association (MAA), Maybank KE

Tariff hike in 2012. The charges for the handling of conventional cargo were raised by between 10-30% in Oct 2012 and this has led to a higher average revenue per tonne of MYR10.50/tonne in 2012 (+9% YoY).

Westports: Conventional services - Revenue breakdown by sub-segments (2012)

Westports: Conventional services (exclude RORO)-Historical throughput and revenue per tonne

Dry bulk 33%

Liquid bulk 20%

Break bulk24%

Cement4%

Roll-on Roll-off (RORO)

13%

Others6%

MYR9.6/tonne MYR9.6/tonne

9.1

9.5

9.8

10.2

10.5

10.9

8,000

8,500

9,000

9,500

10,000

10,500

2010 2011 2012

MYR/tonne'000 tonnes

Throughput: '000 tonnes (LHS)Revenue per tonne: MYR (RHS)

MYR10.5/tonne

Sources: Company, Maybank KE Sources: Company, Maybank KE

of 48


Primary hinterland. The primary hinterland for conventional cargo at Westports mainly consists of industrial zones located in the states of Selangor and Negeri Sembilan. These comprise a number of manufacturing units for steel fabrication, scrap metal, industrial coils, wood furniture, automobiles, sugar, soya bean, clinkers, cement and coal. The demand for refined oils and petroleum products, finished goods, vehicles, grains, construction materials and fertilizers is also supported by Kuala Lumpur and its surrounding suburbs.

Immediate captive area. Nearer to Westports, PKFZ hosts a number of flour mills, project cargo engineering firms, fertilizer plants, bulk commodity traders and edible oil refineries. In addition, major international oil marketing and refining firms and chemical storage companies operate tank farms in the Westports terminal, accounting for the majority of liquid bulk cargo.

Westports: Key details of its conventional terminals' facilities and operations

Dry bulk Break bulk Liquid bulk Cement RORO

Capacity (m tonne p.a.) 9.8 NA NA NA NA

No of berths 4 3 5 1 6

Length of berth (meter) 850 600 1,307 285 NA

Land Area (meter) NA NA 816,000 NA 17.2

Types of cargo handled

Wheat grain, maize, soya bean, sugar,

coal, fertiliser

Iron, steel products,

scrap, coils, machinery,

timber

Petroleum, palm oil,

fuel oil Bulk cement Automobiles

Types of charges

Cargo handling, storage,

marine services

Cargo handling

Cargo handling,

bunkering services

Cargo handling (with

minimum guaranteed

amount)

Cargo handling

Productivity (m tonne) (m tonne) (m tonne) (m tonne) (no. of cars)

Throughput: 2010 4.0 1.0 3.8 0.2 154,588

Throughput: 2011 3.8 1.2 4.4 0.3 168,325

Throughput: 2012 3.6 1.6 4.2 0.8 197,073


Westports: Conventional terminal layout

Container terminalBreak bulk

terminalDry bulk

terminal (I)

Dry bulk terminal (II)

Liquid bulk terminal

Cement terminal

Conventional main gate

Container main gate

Businesscenter


of 48


Marine services

Complementary business. This consists of tug boat services and pilotage services. All vessels that seek to use Westports are required to pay a fee in order to utilize these pilotage and towage services to guide the vessels into the channel leading to the port. Westports levies a fee for pilotage from the pilot station to the vessels’ berth, pilotage from the berth back to the pilot station and for towage via tugboats during berthing and unberthing of the vessels.

Tariff hike in 2012. In 2012, there was a decrease in the total number of vessel calls at Westports (-4% YoY). However, the overall impact to marine revenue was marginal (-1% YoY to MYR64m) due to: (i) an increase in large vessels (>300 meters in length, thus higher charges) calling at Westports; and (ii) an overall increase in marine tariffs of around 20%.

Rental services

Rental of land and buildings. Westports has entered into sub-lease contracts with its customers (mainly the larger conventional cargo customers) on both short and long term bases to primarily rent land, storage facilities and office space. Generally, its customers would enter into short-term contracts to lease warehouse space provided by Westports or third parties while long-term contract customers tend to build warehouses on land leased from Westports.

Ancillary services. In addition to the conventional rental services, Westports also provides on-dock services, such as the delivery, cleaning and repair of import/export containers.

Slight dip in 2012. In 2012, rental revenue decreased to MYR30m (-4% YoY), primarily due to the non-renewal of a contract by one of its tenants.

Westports: Rental services

Area ('000 sqft) % of total

Land

Break bulk 488 2.9

Dry bulk 2,817 16.8

Liquid bulk 6,391 38.1

Roll-on Roll-off (RORO) 1,848 11.0

Cement 1,577 9.4

Other 852 5.1

13,972 83.2

Storage facilities

Container freight station (CFS) 120 0.7

Warehouses 376 2.2

On dock depot 2,246 13.4

Yard 16 0.1

2,757 16.4

Office and others 65 0.4

Total 16,794 100.0


of 48


FINANCIALS

Revenue drivers

Modest topline growth. We project a 6-9% topline growth in FY13-15 respectively, driven by: (i) a moderate container throughput growth of 6-8% p.a.; (ii) a slightly higher (+0.4-1.1%) blended container handling tariff due to our expectation of higher local container volume; and (iii) an 11-14% rise in cargo handling rate and marine charges. A 10-30% rate hike was implemented in Oct 2012 and Westports will see a full-year’s impact in FY13.

Maybank KE: Projected topline growth for Westports

2012A 2013F 2014F 2015F

Revenue (MYRm) 1,226.2 1,338.7 1,417.0 1,521.6

Container 1,009.2 1,090.2 1,160.0 1,253.9

Conventional cargo 122.7 141.6 145.2 149.5

Marine services 64.1 75.4 79.3 84.8

Rental 30.1 31.5 32.5 33.4

Revenue growth (%) 9.9 9.2 5.8 7.4

Container 10.3 8.0 6.4 8.1

Conventional cargo 17.0 15.4 2.5 3.0

Marine services

Rental services

7.9 6.6 5.8 7.7

Volume growth (%) 6.5 4.3 2.3 2.3

Container - Total throughput 17.1 0.0 5.0 8.0

Conventional cargo - Excluding RORO

Conventional cargo - RORO only

Marine - Vessel calls 1.3 1.1 0.6 0.4

1.7 0.0 0.0 0.0

ASP change (%) (3.1) 0.0 0.0 0.0

Container - Blended handling tariff 9.1 10.8 (0.1) (0.1)

Container – Transhipment 5.0 14.2 0.0 0.0

Container – Local 1,226.2 1,338.7 1,417.0 1,521.6

Conventional cargo - Excluding RORO 1,009.2 1,090.2 1,160.0 1,253.9

Conventional cargo - RORO only 122.7 141.6 145.2 149.5

Marine - Vessel calls 64.1 75.4 79.3 84.8


Sensitivity to a container tariff hike. While we are hopeful of a container tariff upward revision for Westports, we have yet to factor it into our forecasts. Amid a steady inflation over the years, the container tariffs at Port Klang has seen little change; the gateway tariff was last reviewed in 2003 (20% hike) while the transhipment tariff has stayed status quo since the commencement of the port. Based on our sensitivity analysis, every 1% increase in the container handling tariff (ceteris paribus) will increase Westports’ bottomline by 1.6%.

of 48


Assumptions for container volume growth. Our assumed throughput growth for FY13-15 is premised on: (i) the GDP growth rates in Asia and Malaysia given the reasonably high correlation between economic growth and container trade historically; and (ii) our expectation of higher market share in Port Klang in FY13-15.

Maybank KE: Key assumptions for Westports' container business

2012A 2013F 2014F 2015F

Throughput related

Total throughput ('000 TEUs) 6,911.5 7,364.9 7,793.0 8,389.7

Transhipment ('000 TEUs) 4,907.2 5,112.5 5,346.1 5,704.3

Local ('000 TEUs) 2,004.3 2,252.4 2,447.0 2,685.5

Total throughput growth (%) 7.9 6.6 5.8 7.7

Transhipment (%) 4.5 4.2 4.6 6.7

Local (%) 17.2 12.4 8.6 9.7

Throughput split (%)

Transhipment (%) 71.0 69.4 68.6 68.0

Local (%) 29.0 30.6 31.4 32.0

Total market share at Port Klang (%) 69.1 70.3 70.8 72.1

Transhipment (%) 78.4 78.4 78.9 79.4

Local (%) 53.5 56.8 57.8 60.3

Effective capacity ('000 TEUs) 9,030.0 9,450.0 9,870.0 10,762.5

Utilisation rate (%) 76.5 77.9 79.0 78.0

GDP growth (%)

Asia* 3.9 4.2 4.9 4.8

Malaysia 5.6 4.5 5.2 5.2

*Note: Asia GDP growth forecast is from IMF. Asia consists of China, Hong Kong, Korea, Taiwan, Singapore and Developing ASEAN-5 (Indonesia, Malaysia, Thailand, Philippines, Vietnam)

Sources: IMF, BNM, Company, Maybank KE

Global and Malaysia: GDP growths against container trades High correlation. According to Drewry Maritime Advisors, every 1% change in nominal GDP has led to a 3% change in global container shipping volume over 1980-2011 and every 1% increase in Malaysia’s nominal GDP has led to an increase of 2% in container throughput at Malaysian ports.

Asia GDP vs. Port Klang’s transhipment volume ASEAN-5 GDP vs. Port Klang’s transhipment volume

(4)

(2)

0

2

4

6

8

10

12

(30)

(20)

(10)

0

10

20

30

40

50

Mar

-06

Aug-

06Ja

n-07

Jun-

07N

ov-0

7A p

r-08

Sep-

08Fe

b-09

Jul-0

9D

ec-0

9M

a y-1

0O

ct-1

0M

ar-1

1Au

g-11

Jan-

12Ju

n-12

Nov

-12

%%Port Klang transhipment volume: % YoY change (LHS) Asia GDP: % YoY change (RHS)

correlationship: 0.79x

(2)

0

2

4

6

8

10

(30)

(20)

(10)

0

10

20

30

40

50

Mar

-06

Aug-

06Ja

n-07

Jun-

07N

ov-0

7A p

r-08

Sep-

08Fe

b-09

Jul-0

9D

ec-0

9M

a y-1

0O

ct-1

0M

ar-1

1Au

g-11

Jan-

12Ju

n-12

Nov

-12

%%Port Klang transhipment volume: % YoY change (LHS) ASEAN-5 GDP: % YoY change (RHS)

correlationship: 0.62x

Sources: IMF, Ministry of Transport, Maybank KE Sources: IMF, Ministry of Transport, Maybank KE

Sensitivity to container throughput growth. We estimate that every 1-ppt change in the container throughput growth from our base case (ceteris paribus) will impact Westports’ bottomline by 1.7%.

of 48


Cost considerations

Key cost components. The three key cost components are: (i) container related cost (37% of total cash cost in FY12), which include marketing, maintenance/repair and rebates to shipping liners; (ii) direct manpower cost (30%), mainly at its container terminals; and (iii) fuel cost (19%), mainly for the operations of its terminal operating equipments (i.e. rubber tyre gantry, trailers, prime movers) at its container terminals and tug boats at its marine services division.

Westports: Breakdown of cash cost (FY12)

Container (marketing,

maintenance/ repair,

rebates)37%

Manpower30%

Fuel19%

Marine (tug boat,

pilotage)7%

Electricity4%

Conventional (stevedoring,

handling & maintenance)

3%


Expect better margins ahead. Overall, we expect a flattish EBITDA margin of 53% in FY13-14 and better EBITDA margins of 54% in FY15 on: (i) the higher blended container tariff rates; (ii) the impact of listing expenses of MYR16m in FY13; and (iii) lower fixed cost per unit owing to higher sales.

Additionally, Westports also aims to reduce the proportion of fixed overhead costs through partial outsourcing of selected operations within its container terminal over time, such as the operation of prime movers. Nevertheless, the overall effect to its profitability may not be significant as it is merely one of its cost containment initiatives.

Cost deviations from our base case. We estimate that every 5% increase in the manpower cost will reduce our bottomline by 2%. Similarly, every 5% increase in fuel cost will reduce our bottomline by 1%. The 16.85% rise in average electricity tariffs for industrial users effective 1 Jan 2014 will only impact our bottomline by <1%.

Westports: Historical and projected EBITDA and EBITDA margins

592 579 654 711 772 846

60.7%

51.9%53.3% 53.1% 53.7% 54.4%

46%

48%

50%

52%

54%

56%

58%

60%

62%

0100200300400500600700800900

1,000

2010 2011 2012 2013F 2014F 2015F

MYR mEBITDA: MYR m (LHS) EBITDA margin: % (RHS)

Notes: (i) FY10-12 are proforma figures (exclude MSA fees); (ii) High EBITDA margin in 2010 was due to a one-off reversal of supplemental lease rental (MYR26m)


of 48


Earnings

Net profit growth: 13%/6%/1% in FY13/FY14/FY15. At the pretax profit level, we project growth of 9%/4%/9% in FY13-15 on volume growths in FY13-15 and slightly better margins in FY15.

However, due to the lower effective tax rate in FY13-14 followed by a higher effective tax rate in FY15, our net profit growth in FY13-15 is slightly distorted to 13%/6%/1% respectively. The low effective tax rate in FY13-14 is a result of the Investment Tax Allowance (ITA) applicable for the construction of its CT6 and CT7 non-moveable assets, such as the wharfs and yards. The rate of the ITA is 60% of the qualifying capex used for the approved project, which can be carried forward if not fully utilised in the year where the capex is incurred.

Westports: Historical and projected pretax profit, net profit and effective tax rates

431 416 491 534 554 603319 355 403 454 482 486

11%14% 13%

6%

1%

26%

15%18%

15%13%

20%

0%

5%

10%

15%

20%

25%

30%

0

100

200

300

400

500

600

700

2010 2011 2012 2013F 2014F 2015F

MYR m

Pretax profit: MYR m (LHS) Net profit: MYR m (LHS)Net profit: % change (LHS) Effective tax rate: % (RHS)

Note: (i) FY10-12 are proforma figures (exclude MSA fees);


9M13 core net profit: MYR310m (+10% YoY). The stronger revenue (+9% YoY) was derived from: (i) solid container throughput growth (+7% YoY) as the volume growth from intra-Asia, Asia-Africa and Asia-Australiasia more than offset for the fall at Asia-Europe; and (ii) higher bulk cargo tariffs, with the tariff hike of 20% implemented in Oct 2012. As for core net margin, it was flattish YoY, at 33%.

However headline 9M13 net profit of MYR304m (+21% YoY) and EBITDA margin (+2.6-ppt YoY) were boosted by: (i) the one-off reversal of overprovision of quit rent, which amounted to MYR33m. This reversal was made pursuant to the signing of Supplemental Lease Agreement in Apr 2013, where Westports received some waivers on prior year payments; and (ii) lower Management Services Agreement (MSA) fees as the company ceased the MSA fees on 1st Sep 2013.

of 48


Westports: Results summary table 3Q13 3Q12 YoY % 9M13 9M12 YoY % Comments: 3Q13 (YoY)

Revenue (exclude construction) 348.4 308.4 13.0 991.2 909.0 9.0 Driven by container revenue (+14%) on volume growth of 13%

Gross profit 193.7 171.9 12.7 541.6 500.5 8.2

MSA fees (10.4) (14.4) (27.8) (39.9) (41.8) (4.5) 2 months of MSA fees only as MSA fees ceased on 1st Sep 2013

Reversal of overprovision of quit rent 0.0 0.0 NM 32.6 0.0 NM 9M13: Waiver on prior year charges

EBITDA (includes MSA fees) 175.8 152.3 15.4 512.8 446.4 14.9

Depreciation and Amortisation (30.1) (25.6) 17.4 (91.7) (81.5) 12.5 CT6 (phase 2) was capitalised in Dec 2012

EBIT 145.7 126.7 15.0 421.1 364.9 15.4

Finance income 1.9 1.1 69.5 6.7 4.8 39.0

Finance cost (14.0) (14.4) (2.2) (42.3) (43.0) (1.6)

Pretax profit 133.6 113.5 17.7 385.5 326.8 18.0

Tax expense (27.8) (24.5) 13.6 (81.4) (75.9) 7.2

Net profit 105.7 89.0 18.8 304.1 250.9 21.2

Net profit (ex-MSA fees, quit rent) 113.5 99.8 13.7 309.6 282.2 9.7 Similar to topline growth

Gross profit margin 55.6 55.7 (0.1) 54.6 55.1 (0.4)

EBITDA margin 50.4 49.4 1.1 51.7 49.1 2.6 Higher due to lower MSA fees

Pretax margin 38.3 36.8 1.5 38.9 36.0 2.9 Higher due to lower MSA fees and higher interest income

Net margin (ex-MSA fees, quit rent) 32.6 32.4 0.2 31.2 31.0 0.2

Effective tax rate 20.8 21.6 (0.8) 21.1 23.2 (2.1)


Balance sheet and Cashflow

Heavy capex in FY13-14. Capex in FY13-14 is estimated at approximately MYR661m and MYR401m respectively, primarily relating to: (i) CT7’s construction works (i.e. wharf and yard) and its terminal operating equipments (i.e. quay cranes, rubber tyre gantries); (ii) new building works to cater for traffic growth from CT7-CT9 (i.e. a second container gate and a second container freight station); and (iii) land reclamation works in FY13. Netting the allocated cash compensation of MYR112m from the Government in relation to the reclamation works in FY13, effective capex in FY13 could be MYR550m.

Lower capex in FY15. Following the major construction works in FY13-14, we think the capex in FY15 will settle lower at MYR181m, primarily for the purchase of terminal operating equipment and maintenance capex.

Westports: Historical and projected capital expenditures

71 507 448 661 401 181

(12%)

48%

(39%)

(55%)

(80%)

(60%)

(40%)

(20%)

0%

20%

40%

60%

0

100

200

300

400

500

600

700

2010 2011 2012 2013F 2014F 2015F

MYR mCapex: MYR m (LHS) Capex: % change (RHS)

Note: Effective capex in FY13 is MYR550m after netting the cash compensation from government for its land reclamation works


of 48


Financing of expansion. We think the expansion capex will be financed via: (i) operating cashflows (FY13F: MYR651m, FY14F: MYR687m); and (ii) MYR350m proceeds from a bond issuance under the Sukuk Musharakah Programme, which has a profit rate of around 5.25% (to be raised in 2H13).

Higher net gearing in FY14. We project Westports’ net gearing to rise to 51% by end-FY14 (from 25% in end-FY12) and decline to 44% in end-FY15 as the capex spending slows.

Westports: Historical and projected capital expenditures

71 680 369 708 874 8065%

51%

25%

44%51%

44%

0%10%20%30%40%50%60%70%80%90%100%

0100200300400500600700800900

1,000

2010 2011 2012 2013F 2014F 2015F

MYR m Net debt: MYR m (LHS) Net gearing: % (RHS)


Dividend payout of 75%. Westports’ dividend policy is to pay out at least 75% of net profit. Based on our assumed dividend payout of 75%, we project a total dividend payout of MYR341m/MYR362m/MYR364m in FY13-15 respectively.

of 48


VALUATIONS

DCF methodology

DCF is our primary approach. Our DCF-derived target price of MYR2.70/shr for Westports is based on several assumptions:

1. 11-year FCF forecast (2014-2024) and the adoption of a growth rate of 2% p.a. from 2025 to 2054.

2. Container throughput CAGR of 6% p.a. from 2014 to 2024.

3. Average EBITDA margin of 55% from 2014 to 2024.

4. Average tax rate of 17% in 2014-2018 and 25% in 2019-2024.

8.1% WACC. This assumes a 4.0% risk-free rate and 6.5% market risk premium. We have also assumed a 0.85 beta, derived from the average beta of NCB Corporation (NCB; BUY, TP: MYR5.11) and Hutchison Port Holdings Trust (HPHT; NR). In our view, both NCB and HPHT are Westports’ closest listed comparables, based on their respective container business profiles and locations.

WACC calculation

Risk free rate Rf 4.0% 10-year government bond yield

Beta B 0.85 Five-year average of NCB and HPHT

Market risk premium Rm-Rf 6.5% Maybank KE in-house estimate

Cost of equity Re 9.5% Rf+B(Rm-Rf)

Cost of debt Rd 5.2% Weighted average interest rate on borrowings

Cost of debt less tax Rd post tax 3.9% Less 25% tax

Debt/(Debt+equity) Wd 75% Target long-term debt:equity structure

Equity/(Debt+equity) We 25% Target long-term debt:equity structure

WACC 8.1% We(Re)+Wd(Re)

Source: Maybank KE

5-year average beta of comparable port operators

Port operator Location Concession expiry year Beta

NCB Corporation (NCB) Port Klang, Malaysia Northport: 2044 0.63

Hutchison Port Hldgs Trust (HPHT) Hong Kong and China Hong Kong ports: 2047 (key assets)

Yantian ports: 2038-2055 1.03

Average: 0.85

Sources: Companies, Bloomberg, Maybank KE

Sensitivity analysis. The table below sets out the equity values of Westports under various throughput growth and WACC assumptions.

DCF valuation matrix (MYR billion)Terminal growth rate

WACC 1.0% 2.0% 3.0%

7.9% 9.10 9.71 10.42

8.0% 8.98 9.57 10.27

8.1% 8.83 9.40 10.08

8.3% 8.63 9.18 9.83

8.5% 8.41 8.94 9.55

Source: Maybank KE

of 48


Targeted dividend yield

Our secondary approach. Our targeted dividend yield (DY) derived-fair value of MYR2.53/shr is premised on a 4.2% required net yield, which in turn is pegged to the current KLCI net yield of 3.2% and after factoring in a 100bps premium. The baseline assumption is a 75% payout of FY14 net profit. The table below sets out the equity value of Westports under different required yield assumptions.

Sensitivity analysis

Baseline 75% payout: 11sen/shr net dividends for FY14

Required dividend yield (%) Fair value (MYR/shr)

3.8% 2.79

4.0% 2.65

4.2% 2.53

4.5% 2.36

Source: Maybank KE

KLCI dividend yield

0.0

2.0

4.0

6.0

8.0

93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

(%)

Source: Bloomberg, Maybank KE

of 48


PER comparison

Not a valuation method, but a cross-check. At our preferred DCF-derived TP of MYR2.70/shr, Westports trades at 19x its FY14 earnings.

Listed comparables. Westports’ trading PER is higher than that NCB’s current 11x and an implied 15x based on our target price for NCB. However, we think this premium is justified given Westports’ more superior growth outlook, market share gains, operational efficiencies and also a remaining concession expiry period that is 10 years longer.

Our implied PER valuations for Westports are below that of HPHT’s current FY14 PER of 23x. In addition to the lower PER valuations, Westports’ concession expiry period is approximately 7 years longer and it offers better earnings growth prospects (Westports’ 6% 3-year [FY12-FY15] net profit CAGR vs. HPHT’s <1%).

Peers comparison table – Pure port operators Company B'berg Rec Share Target Market PER P/B EV/EBITDA DY

Ticker Price price cap 2013 2014 2013 2013 2013 2014

(Local crncy)

(Local crncy)

(USDm) (x) (x) (x) (x) (%) (%)

Local

Suria Capital INTEG MK NR 2.08 NR 194.1 14.3 13.4 1.0 14.7 12.2 2.3

Integrax SURIA MK NR 2.65 NR 233 12.9 12.3 0.9 6.0 5.8 2.8

NCB NCB MK BUY 3.63 5.11 530 18.3 11.0 1.1 6.7 4.8 2.6

Bintulu Port BPH MK NR 7.55 NR 1,078 24.1 22.7 3.4 11.8 11.3 4.0

Westports WPRTS MK BUY 2.53 2.70 2,677 19.0 17.9 5.4 12.9 12.2 4.2

Simple average 17.7 15.5 2.4 10.4 9.2 3.2

Regional

International Container ICT PM NR 105.00 NR 4,886 33.3 26.8 4.8 14.7 12.2 0.6

Hutchinson Port Hldg Trust HPHT SP NR 0.69 NR 5,967 23.6 22.8 0.7 13.5 12.7 7.6

DP World DPW DU NR 16.09 NR 13,355 23.0 20.4 1.6 11.8 10.5 1.5

Shanghai International 600018 CH NR 4.49 NR 16,778 19.3 17.7 2.0 13.2 12.9 3.0

Simple average 24.8 22.0 2.3 13.3 12.1 3.2

Sources: Bloomberg, Maybank KE

ROE comparison. Westports’ ROEs, at our projected 28% for FY13 and FY14 respectively are undoubtedly far superior to that of its peers’ and this in itself should justify a premium to valuations.

Comparison of ROEs vs. P/B for the years 2013-14

NCB

Bintulu Port

Shanghai International

HPHT

International Container

DP World

Westports

0

5

10

15

20

25

30

0 1 2 3 4 5 6 7

2013ROE (%)

P/B (x)

NCB

Bintulu Port

Shanghai International

HPHT

International Container

DP World

Westports

0

5

10

15

20

25

30

35

0 1 2 3 4 5 6

2014

P/B (x)

ROE (%)

Source: Bloomberg, Maybank KE

of 48


RISK FACTORS

1. Increasing container trade volatility. Westports’ business is highly dependent on global trade volume, which in turn is dictated by economic, financial and political conditions. The current economic uncertainties surrounding Europe pose one of the biggest risks to the sustainability of Westports’ container port volumes and its growth.

Our views: Westports’ container throughput involving Europe has seen a visible decrease in the past three years, with a smaller 31% contribution to its total transhipment volume handled in FY12 (from 37% in FY10 and 38% in FY09). However, this has been supplanted by the higher trade volume in intra-Asia trade, which currently accounts for the biggest portion of Westports’ container transhipment volume. Moreover, Westports has proven its profit and cashflow generation ability during the global financial crisis in 2009.

2. Customer concentration risk. Westports’ customers primarily comprise of global container shipping lines, and general cargo and car carriers. Although it has been diversifying its customer base over the past several years, its largest customer CMA CGM (France) still accounted for a big portion of its total revenue – 19% in FY12. Westports’ five largest customers collectively accounted for an average 41% of its total revenue over the last three years. This translates to a risk of significant throughput loss should one or more of these customers decide to relocate their container shipment operations.

Westports: Top 10 clients in 2012 (by container throughput)

Name of customers Country of origin % of total throughput

1 CMA CGM France 35.5

2 China Shipping Group China 10.8

3 UASC Kuwait 9.5

4 Gold Star Line Ltd Hong Kong 7.5

5 Yang Ming Chile 4.8

6 Evergreen Marine Corp Taiwan 4.3

7 CSAV Norasia Taiwan 2.7

8 MAERSK Denmark 2.6

9 MOL Japan 2.5

10 OOCL Hong Kong 2.2

82.3 Source: MARC

Our views: Westports has a long relationship with its customers, particularly the key customers (in terms of volume), which have been with Westports since the late 1990s. Moreover, the big customers have their own dedicated terminal facilities, thereby reducing the need to use competitors’ terminals in which they have no previous investment or relationship with.

The business environment of CMA CGM is also improving, with the establishment of a long-term operational alliance on the East-West trades with its two biggest peers (Maersk and MSC), known as P3 Network. While the alliance is still awaiting the regulatory approval, we think a successful execution of the alliance will help the three liners in costs cutting (via economies of scale) and consolidating the freight rates. The alliance is expected to commence in 2Q14.

of 48


3. Stiffer regional competition. Westports could face stiffer competition ahead in view of a new transhipment port along the Strait of Malacca. While both PSA and PTP’s future new capacity may cater to their clients’ future growth, the rapid emergence of Indonesia’s transhipment port, namely Tanjung Sauh, warrants attention. Tanjung Sauh is an initiative of the Indonesia Government, aiming to cope with the country’s growing domestic demand and also potentially taking away market share from the existing transhipment ports in the region.

Located between Batam and Bintan islands, Tanjung Sauh has the qualities of an ideal location, natural draught and space, which help to save on dredging and land reclamation costs. The first phase of Tanjung Sauh will be completed in 2015 (capacity: 4m TEUs p.a., surrounding water depth: 18 meters, wharf width: 2km) and the second phase include a further 4.5km of wharf, to be built later.

Our views: While Tanjung Sauh may be used to cater for Indonesia’s local demand, we think it will be difficult for Tanjung Sauh to immediately compete against its well-established rivals for the transhipment market at the Strait of Malacca. Tanjung Sauh lacks the track records (in terms of operational efficiencies), logistics infrastructure and surrounding support system.

Moreover, the inefficiency at Indonesia’s biggest container port, Tanjung Priok, has raised serious concerns with its lengthy dwelling time (8 days currently, from 6.5 days in 2011) and resulted in higher business costs and disruption in trade activities. Indonesia’s logistics performance is one of the poorest in Southeast Asia, ranked 59th out of 155 economies, far behind the Philippines and Vietnam.

Regional ports: Proposed expansions by PSA, PTP and Tanjung Sauh Capex

(MYRb) Construction

period New capacity

(m TEUs) Total capacity by year of completion (mTEUs)

PSA (Pasir Panjang Terminal- phase 3 & 4) 8.8 2012-2020 15.0 50.0

PTP 1.4 2013-2014 2.1 10.6

Tanjung Sauh (phase 1) 2.2 2013-2015 4.0 4.0

Sources: Port Technology, Seatrade Global, Maybank KE

Upcoming transhipment port at Straits of Malacca:

Sources: Drewry Maritime Advisors, Maybank KE

of 48


Southeast Asia: Logistics performance index (1=low to 5=high)

4.13.5 3.2 3.1 3.0 2.9

2.4

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Singapore Malaysia Thailand India Vietnam Indonesia Myanmar

Index (1=low, 5=high)

Sources: World Bank, Maybank KE

4. Third port concessionaire at Port Klang. Under the Port Klang Master Development Plan (2010-20) there will be a third port operation at Port Klang. However, details (i.e. location, timing and the operator) are undecided at this juncture. Glenn Marine Group is believed to have submitted a proposal to the Government to develop the third container port on its own land (i.e. Port Klang Cruise Centre) in Pulau Indah, alongside Westport and Northport.

Our views: Considering the trade growth outlook and the potential maximum capacity at Port Klang, we think a severe capacity constraint may take place in 2023. Hence, it is sensible for a third port at Port Klang. Moreover, given Westports’ long track record, it may also turn out to be the operator of this third port.

5. Inability to raise tariffs. Cost inflation without a tariff revision by the Government cast doubt on Westports’ margin sustainability over the longer term. The rising cost could come from higher fuel, electricity, manpower and staff costs, which make up at least 50% of the group’s total cost.

Our views: Assuming no tariff revision over the concession tenure, we believe Westports may lower the rebates it offers to its liner customers, as a way to pass on the higher cost. Our earnings forecasts and valuations for Westport have not incorporated any tariff revisions.

6. Termination of concession. Westports’ concession can be terminated by the Government on the grounds of national interest, national security or public policy. In such circumstances, the Government shall give at least 3 months advance notice and the Government is liable to pay termination compensation to Westports.

Our views: Given Westports’ satisfactory performance as a port operator and its continued discharge of its obligations with respect to investments in port infrastructure under the concession agreement, we believe that the possibility of an early termination of the concession is remote.

of 48


ASSESSMENT OF P3 IMPACT

Background of P3 network. P3 network is a 10-year operational alliance between the world’s three largest container liners: Maersk, MSC and CMA CGM (Westports’ biggest client). This alliance will be pooling their vessel capacities in order to control a significant share of the East-West trade lane (c.40% of container volume) and provide stability to freight rates. Pending regulatory approvals from the US, Europe and China, the alliance aims to commence by Jun 2014.

Lesser P3 business for Westports. According to the proposed network, there will be a greater emphasis on the Port of Tanjung Pelepas (PTP), compared to Port Singapore Authority (PSA) and Westports. However, to begin with, we note that Westports’ present full exposure to P3 volume is limited to only 1m TEUs p.a. (14% of Westports’ total volume), via CMA CGM.

In total, CMA CGM has approximately 2.5m TEUs (35% of Westports’ total volume) going through Westports annually and the breakdown between P3 and non-P3 volume is 1m TEUs and 1.5m TEUs respectively.

CMA CGM indicating limited volume loss for Westports. In order to assess the impact of the reduced weekly calls at Westports (from 10 to 6), we met up with Mr Simon P.Whitelaw (Managing Director of CMA CGM Malaysia S/B) in early-Nov 2013. The key takeaways are: (i) CMA CGM believes that around 275,000 TEUs (or 4% of Westports’ total volume) will be transferred out to PTP; however (ii) the net impact could be a loss of only 175,000 TEUs (2% of Westports’ total volume) as CMA CGM introduces new non-P3 services from 1H14 onwards, particularly for the growing intra-Asia, Asia-Middle East and Asia-Africa markets.

CMA CGM “sticking” with Westports for its attributes. Furthermore, CMA CGM has also indicated its long-term commitment in using Westports as its hub in this region. This is because, compared to PTP and PSA, Westports offers the fastest turnaround time and better efficiencies (due to relatively lower congestion at the port), coupled with the competitiveness of its container handling charges.

The other compelling factors to CMA CGM also include: (i) Port Klang Authority’s decision in deepening the draft to 18-20m (17-17.5m presently), meeting CMA CGM’s future need; and (ii) vast surrounding landbank and cheap warehouse rental costs at Port Klang Free Zone, which will entice commodity trading companies with huge storage needs to move over.

of 48


FINANCIAL DETAILS

INCOME STATEMENT (MYR m) BALANCE SHEET (MYR m)

FY Dec FY12A FY13F FY14F FY15F FY Dec FY12A FY13F FY14F FY15F Revenue 1,226.2 1,338.7 1,417.0 1,521.6 Fixed Assets 2,678.2 3,108.4 3,374.8 3,410.8 EBITDA 654.1 711.2 756.2 818.5 Other LT Assets 0.0 1.0 2.0 3.0 Depreciation & Amortisation (113.2) (118.4) (133.9) (143.7) Cash/ST Investments 325.5 51.2 181.9 243.6 Operating Profit (EBIT) 540.9 592.8 622.3 674.9 Other Current Assets 210.7 230.2 244.2 262.4

Interest (Exp)/Inc (49.7) (58.4) (67.9) (71.5) Total Assets 3,214.4 3,390.8 3,802.9 3,919.8 Associates 0.0 0.0 0.0 0.0 One-offs 0.0 0.0 0.0 0.0 ST Debt 245.0 245.0 245.0 245.0 Pre-Tax Profit 491.1 534.4 554.5 603.4 Other Current Liabilities 376.3 399.2 415.1 437.2 Tax (87.8) (80.2) (72.1) (117.7) LT Debt 450.0 513.1 813.1 813.1 Minority Interest 0.0 0.0 0.0 0.0 Other LT Liabilities 653.5 629.3 603.9 576.2 Net Profit 403.3 454.2 482.4 485.7 Minority Interest 0.0 1.0 2.0 3.0 Recurring Net Profit 403.3 454.2 482.4 485.7 Shareholders' Equity 1,489.7 1,603.2 1,723.8 1,845.2

Total Liabilities-Capital 3,214.4 3,390.8 3,802.9 3,919.8 Revenue Growth % 9.9 9.2 5.8 7.4 EBITDA Growth (%) 12.9 8.7 6.3 8.2 Share Capital (m) 3,410.0 3,410.0 3,410.0 3,410.0 EBIT Growth (%) 16.5 9.6 5.0 8.4 Gross Debt/(Cash) 695.0 758.1 1,058.1 1,058.1 Net Profit Growth (%) 13.6 12.6 6.2 0.7 Net Debt/(Cash) 369.5 706.9 876.2 814.5 Recurring Net Profit Growth (%) 13.6 12.6 6.2 0.7 Working Capital 219.8 (57.8) 70.9 129.6 Tax Rate % 17.9 15.0 13.0 19.5

CASH FLOW (MYR m) RATES & RATIOS

FY Dec FY12A FY13F FY14F FY15F FY Dec FY12A FY13F FY14F FY15F Profit before taxation 491.1 534.4 554.5 603.4 EBITDA Margin % 53.3 53.1 53.4 53.8 Depreciation 113.2 118.4 133.9 143.7 Op. Profit Margin % 44.1 44.3 43.9 44.4 Net interest receipts/(payments) 49.7 58.4 67.9 71.5 Net Profit Margin % 32.9 33.9 34.0 31.9 Working capital change 66.7 4.4 3.1 4.1 ROE % 27.1 28.3 28.0 26.3 Cash tax paid (35.2) (80.2) (72.1) (117.7) ROA % 12.5 13.4 12.7 12.4 Others (incl'd exceptional items) 1.9 15.8 0.0 0.0 Net Margin Ex. El % 32.9 33.9 34.0 31.9 Cash flow from operations 687.4 651.2 687.1 704.9 Dividend Cover (x) 0.1 1.3 1.3 1.3 Capex (448.2) (661.4) (401.4) (180.8) Interest Cover (x) 13.1 11.9 10.1 8.7 Disposal/(purchase) 1.0 0.0 0.0 0.0 Asset Turnover (x) 2.6 2.5 2.7 2.6 Others 172.8 111.7 0.0 0.0 Asset/Debt (x) 4.6 4.5 3.6 3.7 Cash flow from investing (274.3) (549.7) (401.4) (180.8) Debtors Turn (days) 59.9 59.9 59.9 59.9 Debt raised/(repaid) (100.7) 63.1 300.0 0.0 Creditors Turn (days) 74.2 74.2 74.2 74.2 Equity raised/(repaid) 0.0 0.0 0.0 0.0 Inventory Turn (days) 0.0 1.0 2.0 3.0 Dividends (paid) (199.6) (340.7) (361.8) (364.3) Net Gearing % 24.8 44.1 50.8 44.1 Interest payments (35.2) (33.4) (44.2) (49.2) Debt/ EBITDA (x) 1.1 1.1 1.4 1.3 Others (47.3) (64.9) (49.1) (49.1) Debt/ Market Cap (x) 0.1 0.1 0.1 0.1 Cash flow from financing (382.8) (375.9) (155.1) (462.5) Change in cash 30.3 (274.3) 130.7 61.7


of 48


Appendix I – Organisation Structure

South Port Investment2

Westports Holdings

Westports Malaysia

Pembinaan Redzai

LankayanVentures

100%

44.96% 7.52%

DinamikImbangan1

7.52% 32.48%

MOF Inc

Special share3

SemakinAjaib1

7.52%

VTCM4

100%

South Port Investment2

WestportsHoldings

Westports Malaysia

PembinaanRedzai

LankayanVentures

100%

43.30% 3.50% 24.36%

MOF Inc

Special share3

SemakinAjaib1

4.99%

VTCM4

100%

Public

23.85%

Notes: (1) Parties deemed affiliated to Pembinaan Redzai Sdn Bhd; (2) South Port Investment is the indirect subsidiary of Hutchison Port Holdings Ltd; (3) The special share is held by the government of Malaysia through the Ministry of Finance Incorporated. The special share enables the

government, through the Ministry of Finance Incorporated, in ensuring certain major decisions affecting the operations of Westports are consistent with the government’s policies;

(4) Vehicle Transit Centre (Malaysia) Sdn Bhd - a dormant entity Sources: Company, Maybank KE

Pre-IPO

Post-IPO

of 48


Appendix II – Board of Directors and Senior Management

Board of Directors Source: Company

Name Designation Profile

Tan Sri Datuk Gnanalingam a/l Gunanath Lingam

Non-Independent Executive Chairman

Bachelor of Arts from University of Malaya (1968)

Attended the Advanced Management Programme at Harvard Business School in Boston (1991)

Started Westports in 1994.

Transport Man of the Year (2001) by the Ministry of Transport, Malaysia.

Member of National PEMUDAH committee, a special task force by the Prime Minister of Malaysia to facilitate businesses in Malaysia by identifying improvements to existing GOM processes and regulations based on global benchmarking reports and public feedback.

Tan Sri Dato’ Nik Ibrahim Kamil Bin Tan Sri Nik Ahmad Kamil

Independent Non-Executive Director

Bachelor of Science in Economics and Business Administration from George University, Washington D.C. (1966)

45 years of managerial and business experience in various industries ranging from mining, petroleum to port management.

Longest serving director in WMSB, having been appointed to the board in 1994.

Appointed to boards of many private and public companies such as QSR Berhad, KFC Malaysia Berhad, Southern Investment Bank Berhad and OCB Berhad in Singapore.

Ruben Emir Gnanalingam Bin Abdullah

Chief Executive Ofifcer Bachelor of Science (Hons) in Economics from London School of Economics and Political Science,UK (1998)

Diploma in Port Management recognised by Cambridge University, UK (2001)

Main responsibilities include business development, technology enhancement, process engineering and managing of procurement.

Eldest son of the Non-Independent Executive Chairman.

John Edward Wenham Meredith

Non-Independent Non Executive Director

Graduated from University of Southampton, UK as a Master Mariner (1955)

Honorary Doctor of Laws degree from University of Western Ontario, Canada. (2008)

Well known in the maritime industry and is a pioneer in containerisation with more than 40 years of business in the terminal business.

Deputy Chairman and non-executive director of Hutchinson Port Holdings since 1996.

Ip Sing Chi Non-Independent Non-Executive Director

Bachelor of Arts from Lanchester Polytechnic, UK (1979)

Over 30 years of experience in the maritime industry

Chairman of Yantian International C ontainer Terminals Limited, an outside director of Hyundai Merchant Marine Co Ltd. And an independent non-executive director of Cosco Pacific Limited.

Executive director of Hutchinson Port Holdings Management Pte. Limited since February 2011.

Chan Chu Wei Non-Independent Non-Executive Director

Bachelor of Social Science from University Sains Malaysia (1977) and attended the International Seniors Managers Programme by Harvard Business School in Boston, US (1993) as well as the Advanced Management by Templeton College in Oxford, UK (1997)

Joined WMSB in 1994 as an executive director and assisted in drawing up the blueprint proposal that secured the concession for Westport.

Oversaw both marketing and operational leadership roles until 2008, especially in container operations.

Dato’ Abdul Rahim Abu Bakar


Bachelor of Science (Hons) degree in Electrical Engineering from Brighton College of Technology, UK (1969).

Professional Engineer registered with the Board of Engineers Malaysia and holds the Electrical Engineer Certificate of Competency Grade 1.

He was the vice president of Petroliam Nasional Berhad (Petronas), in charge of the petrochemical business.

Before that he was in Petronas Gas Berhad as the managing director and Chief Executive Officer until August 1999.

Dato’ Yusli Bin Moahamed Yusoff


Bachelor of Economics from University of Essex, UK (1981) and is a member of the Institute of Chartered Accountants in England and Wales, the Malaysian Institute of Accountants and is also an honorary member of the Institute of Internal Auditors Malaysia.

Served as Chief Executive Officer of Bursa Malaysia Berhad and led Bursa Malaysia to its listing in 2005.

He serves as an executive chairman of Australaysia Resources & Minerals Berhad as well as an independent non-executive director on the boards of YTL Power International Berhad, Mulpha International Berhad, Mudajaya Group.

Jeyakumar a/l T Palakrishnar


Bachelor of Law (Hons) from University of London, UK (1993).

Panel member of the Disciplinary Committee appointed by the Malaysian Bar Advocates & Solicitors’ Disciplinary Board

Called to the Malaysian Bar in 1995.

of 48


Senior Management

Name Designation Profile

Tan Sri Datuk Gnanalingam a/l Gunanath Lingam

Non-Independent Executive Chairman

Refer to Board of Directors(table above)

Ruben Emir Gnanalingam Bin Abdullah

Chief Executive Officer Bachelor of Science (Hons) in Economics from London School of Economics and Political Science,UK (1998)

Diploma in Port Management recognised by Cambridge University, UK (2001)

Main responsibilities include business development, technology enhancement, process engineering and managing of procurement.

Eldest son of the Non-Independent Executive Chairman.

Ahmayuddin Bin Ahmad

Head of Corporate Affairs

Masters in Business Administration from West Virginia University, US (1982)

Responsible for all our corporate social responsibilities and also for liaising with officials of the GOM.

30 years of experience in marketing and organization.

Ahmad Damanhury Bin Ibrahim

Head of Port Projects Degree in Civil Engineering from Syracuse University, New York, US (1990) and Diploma in Port Management recognised by Cambridge University, UK (2001)

Introduced container yards pavement substructures alternative design and comer slabs slacking yard which are cheaper, faster to construct and easier to maintain.

Responsible for planning and project management for the construction of all port expansion projects and other technical feasibility studies.

Member of Institution of Engineers and the Board of Engineers, Malaysia.

Muhammad Abdullah Hatta Bin Bulat

Chief Financial Officer Degree in Accountancy from Universiti Malaya (1993) and Chartered Accountant registered with the Malaysian Institute of Accountants.

19 years of experience in the field of accounting and finance.

Previously at DRB-HICOM, Golden Pharos Berhad, Ernst & Young Malaysia and Anuarul Azizan & Chew.

Nanthakumar a/l Murokana @ Murugan

Head of Operation Resources

Degree in Business Administration from University of Western Michigan, US (1998)

Responsible for overseeing the costs incurred for resources availability for container operations as well as costs incurred for resources deployment and succession planning for key positions, focusing on competencies development through constant coaching and training.

Tan Wei Chun Head of Port Planning Advanced diploma in Transportation and Logistics from the Chartered Institute of Transport, UK (1997)

14 years of experience mostly in areas of capacity planning, strategic yard planning, vessel stowage planning, cargo terminal operations, control room operations, project management and operations IT development.

Responsible for overall yard and vessel planning.

He is a member of the Chartered Institute of Transport, IJK.

Mani Segaran a/l S Vadivel

Head of Conventional Cargo Operations

Masters in Business Administration from Victoria University of Technology, Australia (1999), diploma in International Intelligence Officers Course (US) and Psychological Operations Officers Course (1997)

12 years of experience in various areas of work including human resource, training, safety and security.

Associate member of the Chartered Institute of Personnel & Development, UK and Malaysian Ex-Armed Forces Association.

Lee Mun Tat Head of Commercial Joined Westports in May 2003 as a Finance Manager.

Assumed present position in July 2007.

Over 10 years of experience in the field of accounting and finance.

Vijaya Kumar a/l S Puspowanam

Head of Marketing Joined Westports in January 2000 as a gate operations executive.

Assumed present position in January 2006.

12 years of experience in container operations.

Veeranaidu a/l Ramandu

Head of Finance Degree in Accounting from Universiti Pertanian Malaysia (1995) and member of the Malaysian Institute of Accountants.

More than 15 years of experience in the field of finance.

Was previously in Hong Leong Group and Lingkaran Trans Kota Holdings Berhad.

Ramesh a/l S Sandrasinghi

Head of Technical Services

Degree in Mechanical Engineering from Universiti Teknologi Malaysia (1992) and Masters in Business Administration in General Management from the University of Strathclyde, UK (1999)

More than 12 years of experience in manufacturing operations in both multinational corporations and small and medium enterprises.

Source: Company

of 48


RESEARCH OFFICES REGIONAL

WONG Chew Hann, CA Regional Head, Institutional Research (603) 2297 8686 [email protected]

Alexander GARTHOFF Institutional Product Manager (852) 2268 0638 [email protected]

ONG Seng Yeow Regional Head, Retail Research (65) 6432 1453 [email protected]

ECONOMICS Suhaimi ILIAS Chief Economist Singapore | Malaysia (603) 2297 8682 [email protected]

Luz LORENZO Philippines (63) 2 849 8836 [email protected]

Tim LEELAHAPHAN Thailand (662) 658 1420 [email protected]

JUNIMANChief Economist, BII Indonesia (62) 21 29228888 ext 29682 [email protected]

Josua PARDEDE Economist / Industry Analyst, BII Indonesia (62) 21 29228888 ext 29695 [email protected]

MALAYSIA WONG CHEW HANN, CA Head of Research (603) 2297 8686 [email protected] Strategy DESMOND CH’NG, ACA (603) 2297 8680 [email protected] Banking & Finance LIAW THONG JUNG (603) 2297 8688 [email protected] Oil & Gas – Regional Shipping ONG CHEE TING, CA (603) 2297 8678 [email protected] Plantations – Regional MOHSHIN AZIZ (603) 2297 8692 [email protected] Aviation – Regional Petrochem YIN SHAO YANG, CPA (603) 2297 8916 [email protected] Gaming – Regional Media TAN CHI WEI, CFA (603) 2297 8690 [email protected] Power Telcos WONG WEI SUM, CFA (603) 2297 8679 [email protected] Property & REITs LEE YEN LING (603) 2297 8691 [email protected] Building Materials Glove producers

CHAI LI SHIN (603) 2297 8684 [email protected] Plantation Construction & Infrastructure KANG CHUN EE (603) 2297 8675 [email protected] Consumer IVAN YAP (603) 2297 8612 [email protected] Automotive LEE Cheng Hooi, Regional Chartist (603) 2297 8694 [email protected] Tee Sze Chiah, Head of Retail Research (603) 2297 6858 [email protected]

HONG KONG / CHINA Howard WONG Head of Research (852) 2268 0648 [email protected] Oil & Gas - Regional Alexander LATZER (852) 2268 0647 [email protected] Metals & Mining - Regional Jacqueline KO, CFA (852) 2268 0633 [email protected] Consumer Karen KWAN (852) 2268 0640 [email protected] HK & China Property Philip TSE (852) 2268 0643 [email protected] HK & China Property Simon QIAN (852) 2268 0634 [email protected] Telecom & Internet Steven CHAN (852) 2268 0645 [email protected] Banking & Financials Warren LAU (852) 2268 0644 [email protected] Technology – Regional

INDIA Jigar SHAH Head of Research (91) 22 6623 2601 [email protected] Oil & Gas Automobile Cement Anubhav GUPTA (91) 22 6623 2605 [email protected] Metal & Mining Capital goods Property Urmil SHAH (91) 22 6623 2606 [email protected] Technology Media

SINGAPORE NG Wee Siang Head of Research (65) 6432 1467 [email protected] Banking & Finance Gregory YAP (65) 6432 1450 [email protected] SMID Caps – Regional Technology & Manufacturing Telcos Wilson LIEW (65) 6432 1454 [email protected] Property Developers ONG Kian Lin (65) 6432 1470 [email protected] S-REITs James KOH (65) 6432 1431 [email protected] Consumer - Regional YEAK Chee Keong, CFA (65) 6432 1460 [email protected] Offshore & Marine Derrick HENG (65) 6432 1446 [email protected] Transport (Land, Shipping & Aviation) Wei Bin (65) 6432 1455 [email protected] Commodity Logistics S-chips Alison FOK (65) 6432 1447 [email protected] Small & Mid Caps Construction John CHEONG (65) 6432 1461 [email protected] Small & Mid Caps Healthcare

INDONESIA Lucky ARIESANDI, CFA (62) 21 2557 1127 [email protected] Base metals Mining Oil & Gas Wholesale Pandu ANUGRAH (62) 21 2557 1137 [email protected] Automotive Heavy equipment Plantation Toll road Rahmi MARINA (62) 21 2557 1128 [email protected] Banking Multifinance Adi N. WICAKSONO (62) 21 2557 1128 [email protected] Generalist Anthony YUNUS (62) 21 2557 1139 [email protected] Cement Infrastructure Property

PHILIPPINES Luz LORENZO Head of Research (63) 2 849 8836 [email protected] Strategy Laura DY-LIACCO (63) 2 849 8840 [email protected] Utilities Conglomerates Telcos Lovell SARREAL (63) 2 849 8841 [email protected] Consumer Media Cement Rommel RODRIGO (63) 2 849 8839 [email protected] Conglomerates Property Ports/ Logistics Gaming Katherine TAN (63) 2 849 8843 [email protected] Banks Construction Ramon ADVIENTO (63) 2 849 8845 [email protected] Mining

THAILAND Sukit UDOMSIRIKUL Head of Research (66) 2658 6300 ext 5090 [email protected]

Maria LAPIZ Head of Institutional Research Dir (66) 2257 0250 | (66) 2658 6300 ext 1399 [email protected] Consumer/ Big Caps

Mayuree CHOWVIKRAN (66) 2658 6300 ext 1440 [email protected] Strategy Padon Vannarat (66) 2658 6300 ext 1450 [email protected] Strategy Surachai PRAMUALCHAROENKIT (66) 2658 6300 ext 1470 [email protected] Auto Conmat Contractor Steel Suttatip PEERASUB (66) 2658 6300 ext 1430 [email protected] Media Commerce Sutthichai KUMWORACHAI (66) 2658 6300 ext 1400 [email protected] Energy Petrochem Termporn TANTIVIVAT (66) 2658 6300 ext 1520 [email protected] Property Woraphon WIROONSRI (66) 2658 6300 ext 1560 [email protected] Banking & Finance Jaroonpan WATTANAWONG (66) 2658 6300 ext 1404 [email protected] Transportation Small cap. Chatchai JINDARAT (66) 2658 6300 ext 1401 [email protected] Electronics

VIETNAM Nguyen Thi Ngan Tuyen (84) 844 55 58 88 x 8081 [email protected] Food and Beverage Oil and Gas Hang Vu (84) 844 55 58 88 x 8087 [email protected] Banking Trinh Thi Ngoc Diep (84) 844 55 58 88 x 8242 [email protected] Technology Utilities Construction Dang Thi Kim Thoa (84) 844 55 58 88 x 8083 [email protected] Consumer Nguyen Trung Hoa (84) 844 55 58 88 x 8088 [email protected] Steel Sugar Resources

of 48


APPENDIX III: TERMS FOR PROVISION OF REPORT, DISCLAIMERS AND DISCLOSURES

DISCLAIMERS

This research report is prepared for general circulation and for information purposes only and under no circumstances should it be considered or intended as an offer to sell or a solicitation of an offer to buy the securities referred to herein. Investors should note that values of such securities, if any, may fluctuate and that each security’s price or value may rise or fall. Opinions or recommendations contained herein are in form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from the relevant jurisdiction’s stock exchange in the equity analysis. Accordingly, investors’ returns may be less than the original sum invested. Past performance is not necessarily a guide to future performance. This report is not intended to provide personal investment advice and does not take into account the specific investment objectives, the financial situation and the particular needs of persons who may receive or read this report. Investors should therefore seek financial, legal and other advice regarding the appropriateness of investing in any securities or the investment strategies discussed or recommended in this report.

The information contained herein has been obtained from sources believed to be reliable but such sources have not been independently verified by Maybank Investment Bank Berhad, its subsidiary and affiliates (collectively, “MKE”) and consequently no representation is made as to the accuracy or completeness of this report by MKE and it should not be relied upon as such. Accordingly, MKE and its officers, directors, associates, connected parties and/or employees (collectively, “Representatives”) shall not be liable for any direct, indirect or consequential losses or damages that may arise from the use or reliance of this report. Any information, opinions or recommendations contained herein are subject to change at any time, without prior notice.

This report may contain forward looking statements which are often but not always identified by the use of words such as “anticipate”, “believe”, “estimate”, “intend”, “plan”, “expect”, “forecast”, “predict” and “project” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. Such forward looking statements are based on assumptions made and information currently available to us and are subject to certain risks and uncertainties that could cause the actual results to differ materially from those expressed in any forward looking statements. Readers are cautioned not to place undue relevance on these forward-looking statements. MKE expressly disclaims any obligation to update or revise any such forward looking statements to reflect new information, events or circumstances after the date of this publication or to reflect the occurrence of unanticipated events.

MKE and its officers, directors and employees, including persons involved in the preparation or issuance of this report, may, to the extent permitted by law, from time to time participate or invest in financing transactions with the issuer(s) of the securities mentioned in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. MKE may, to the extent permitted by law, act upon or use the information presented herein, or the research or analysis on which they are based, before the material is published. One or more directors, officers and/or employees of MKE may be a director of the issuers of the securities mentioned in this report.

This report is prepared for the use of MKE’s clients and may not be reproduced, altered in any way, transmitted to, copied or distributed to any other party in whole or in part in any form or manner without the prior express written consent of MKE and MKE and its Representatives accepts no liability whatsoever for the actions of third parties in this respect.

This report is not directed to or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. This report is for distribution only under such circumstances as may be permitted by applicable law. The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply based on geographical location of the person or entity receiving this report.

Malaysia

Opinions or recommendations contained herein are in the form of technical ratings and fundamental ratings. Technical ratings may differ from fundamental ratings as technical valuations apply different methodologies and are purely based on price and volume-related information extracted from Bursa Malaysia Securities Berhad in the equity analysis.

Singapore

This report has been produced as of the date hereof and the information herein may be subject to change. Maybank Kim Eng Research Pte. Ltd. (“Maybank KERPL”) in Singapore has no obligation to update such information for any recipient. For distribution in Singapore, recipients of this report are to contact Maybank KERPL in Singapore in respect of any matters arising from, or in connection with, this report. If the recipient of this report is not an accredited investor, expert investor or institutional investor (as defined under Section 4A of the Singapore Securities and Futures Act), Maybank KERPL shall be legally liable for the contents of this report, with such liability being limited to the extent (if any) as permitted by law.

Thailand

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information.The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey may be changed after that date. Maybank Kim Eng Securities (Thailand) Public Company Limited (“MBKET”) does not confirm nor certify the accuracy of such survey result.

Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of MBKET. MBKET accepts no liability whatsoever for the actions of third parties in this respect.

US

This research report prepared by MKE is distributed in the United States (“US”) to Major US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Maybank Kim Eng Securities USA Inc (“Maybank KESUSA”), a broker-dealer registered in the US (registered under Section 15 of the Securities Exchange Act of 1934, as amended). All responsibility for the distribution of this report by Maybank KESUSA in the US shall be borne by Maybank KESUSA. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if MKE is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Maybank KESUSA is permitted to provide research material concerning investments to you under relevant legislation and regulations.

UK

This document is being distributed by Maybank Kim Eng Securities (London) Ltd (“Maybank KESL”) which is authorized and regulated, by the Financial Services Authority and is for Informational Purposes only. This document is not intended for distribution to anyone defined as a Retail Client under the Financial Services and Markets Act 2000 within the UK. Any inclusion of a third party link is for the recipients convenience only, and that the firm does not take any responsibility for its comments or accuracy, and that access to such links is at the individuals own risk. Nothing in this report should be considered as constituting legal, accounting or tax advice, and that for accurate guidance recipients should consult with their own independent tax advisers.

of 48


DISCLOSURES Legal Entities Disclosures

Malaysia: This report is issued and distributed in Malaysia by Maybank Investment Bank Berhad (15938-H) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital Markets and Services License issued by the Securities Commission in Malaysia. Singapore: This material is issued and distributed in Singapore by Maybank KERPL (Co. Reg No 197201256N) which is regulated by the Monetary Authority of Singapore. Indonesia: PT Kim Eng Securities (“PTKES”) (Reg. No. KEP-251/PM/1992) is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Thailand: MBKET (Reg. No.0107545000314) is a member of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Philippines: Maybank ATRKES (Reg. No.01-2004-00019) is a member of the Philippines Stock Exchange and is regulated by the Securities and Exchange Commission. Vietnam: Maybank Kim Eng Securities JSC (License Number: 71/UBCK-GP) is licensed under the State Securities Commission of Vietnam.Hong Kong: KESHK (Central Entity No AAD284) is regulated by the Securities and Futures Commission. India: Kim Eng Securities India Private Limited (“KESI”) is a participant of the National Stock Exchange of India Limited (Reg No: INF/INB 231452435) and the Bombay Stock Exchange (Reg. No. INF/INB 011452431) and is regulated by Securities and Exchange Board of India. KESI is also registered with SEBI as Category 1 Merchant Banker (Reg. No. INM 000011708) US: Maybank KESUSA is a member of/ and is authorized and regulated by the FINRA – Broker ID 27861. UK: Maybank KESL (Reg No 2377538) is authorized and regulated by the Financial Services Authority.

Disclosure of Interest Malaysia: MKE and its Representatives may from time to time have positions or be materially interested in the securities referred to herein and may further act as market maker or may have assumed an underwriting commitment or deal with such securities and may also perform or seek to perform investment banking services, advisory and other services for or relating to those companies.

Singapore: As of 4 December 2013, Maybank KERPL and the covering analyst do not have any interest in any companies recommended in this research report.

Thailand: MBKET may have a business relationship with or may possibly be an issuer of derivative warrants on the securities /companies mentioned in the research report. Therefore, Investors should exercise their own judgment before making any investment decisions. MBKET, its associates, directors, connected parties and/or employees may from time to time have interests and/or underwriting commitments in the securities mentioned in this report.

Hong Kong: KESHK may have financial interests in relation to an issuer or a new listing applicant referred to as defined by the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.

As of 4 December 2013, KESHK and the authoring analyst do not have any interest in any companies recommended in this research report.

MKE may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment and may receive compensation for the services provided from the companies covered in this report.

OTHERS Analyst Certification of Independence

The views expressed in this research report accurately reflect the analyst’s personal views about any and all of the subject securities or issuers; and no part of the research analyst’s compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in the report.

Reminder

Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct its own analysis of the product and consult with its own professional advisers as to the risks involved in making such a purchase.

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior consent of MKE.

Definition of Ratings

Maybank Kim Eng Research uses the following rating system:

BUY Total return is expected to be above 10% in the next 12 months (excluding dividends)

HOLD Total return is expected to be between -10% to +10% in the next 12 months (excluding dividends)

SELL Total return is expected to be below -10% in the next 12 months (excluding dividends)

Applicability of Ratings

The respective analyst maintains a coverage universe of stocks, the list of which may be adjusted according to needs. Investment ratings are only applicable to the stocks which form part of the coverage universe. Reports on companies which are not part of the coverage do not carry investment ratings as we do not actively follow developments in these companies.

Some common terms abbreviated in this report (where they appear):

Adex = Advertising Expenditure FCF = Free Cashflow PE = Price Earnings BV = Book Value FV = Fair Value PEG = PE Ratio To Growth CAGR = Compounded Annual Growth Rate FY = Financial Year PER = PE Ratio Capex = Capital Expenditure FYE = Financial Year End QoQ = Quarter-On-Quarter CY = Calendar Year MoM = Month-On-Month ROA = Return On Asset DCF = Discounted Cashflow NAV = Net Asset Value ROE = Return On Equity DPS = Dividend Per Share NTA = Net Tangible Asset ROSF = Return On Shareholders’ Funds EBIT = Earnings Before Interest And Tax P = Price WACC = Weighted Average Cost Of Capital EBITDA = EBIT, Depreciation And Amortisation P.A. = Per Annum YoY = Year-On-Year EPS = Earnings Per Share PAT = Profit After Tax YTD = Year-To-Date EV = Enterprise Value PBT = Profit Before Tax

of 48


Malaysia Maybank Investment Bank Berhad (A Participating Organisation of Bursa Malaysia Securities Berhad) 33rd Floor, Menara Maybank, 100 Jalan Tun Perak, 50050 Kuala Lumpur Tel: (603) 2059 1888; Fax: (603) 2078 4194

Singapore Maybank Kim Eng Securities Pte Ltd Maybank Kim Eng Research Pte Ltd 9 Temasek Boulevard #39-00 Suntec Tower 2 Singapore 038989 Tel: (65) 6336 9090 Fax: (65) 6339 6003

London Maybank Kim Eng Securities (London) Ltd 6/F, 20 St. Dunstan’s Hill London EC3R 8HY, UK Tel: (44) 20 7621 9298 Dealers’ Tel: (44) 20 7626 2828 Fax: (44) 20 7283 6674

New York Maybank Kim Eng Securities USA Inc 777 Third Avenue, 21st Floor New York, NY 10017, U.S.A. Tel: (212) 688 8886 Fax: (212) 688 3500

Stockbroking Business: Level 8, Tower C, Dataran Maybank, No.1, Jalan Maarof 59000 Kuala Lumpur Tel: (603) 2297 8888 Fax: (603) 2282 5136

Hong Kong Kim Eng Securities (HK) Ltd Level 30, Three Pacific Place, 1 Queen’s Road East, Hong Kong Tel: (852) 2268 0800 Fax: (852) 2877 0104

Indonesia PT Kim Eng Securities Plaza Bapindo Citibank Tower 17th Floor Jl Jend. Sudirman Kav. 54-55 Jakarta 12190, Indonesia

Tel: (62) 21 2557 1188 Fax: (62) 21 2557 1189

India Kim Eng Securities India Pvt Ltd 2nd Floor, The International 16, Maharishi Karve Road, Churchgate Station, Mumbai City - 400 020, India Tel: (91).22.6623.2600 Fax: (91).22.6623.2604

Philippines Maybank ATR Kim Eng Securities Inc. 17/F, Tower One & Exchange Plaza Ayala Triangle, Ayala Avenue Makati City, Philippines 1200 Tel: (63) 2 849 8888 Fax: (63) 2 848 5738

Thailand Maybank Kim Eng Securities (Thailand) Public Company Limited 999/9 The Offices at Central World, 20th - 21st Floor, Rama 1 Road Pathumwan, Bangkok 10330, Thailand Tel: (66) 2 658 6817 (sales) Tel: (66) 2 658 6801 (research)

Vietnam In association with

Maybank Kim Eng Securities JSC 1st Floor, 255 Tran Hung Dao St. District 1 Ho Chi Minh City, Vietnam Tel : (84) 844 555 888 Fax : (84) 838 38 66 39

Saudi Arabia In association with

Anfaal Capital Villa 47, Tujjar Jeddah Prince Mohammed bin Abdulaziz Street P.O. Box 126575 Jeddah 21352 Tel: (966) 2 6068686 Fax: (966) 26068787

South Asia Sales Trading Kevin FOY [email protected] Tel: (65) 6336-5157 US Toll Free: 1-866-406-7447

North Asia Sales Trading Eddie LAU [email protected] Tel: (852) 2268 0800 US Toll Free: 1 866 598 2267

www.maybank-ke.com | www.maybank-keresearch.com

westports initiation reviewed - wch -...

Documents