Tuesday, November 5, 2013

Westport: no movement after IPO - what's next?

One of the things which I like to do in investment is to do some comparison among the players and have a feel in the stock. Well, the word "feel" sounds scary as it is more of an art rather than a science. There is no PE or any other valuation methods involved. My "feel" is largely successful in picking DKSH and before this blog was up - Digi. When I said feel, DKSH was not going to be a RM200 million company with what they have done. So was Digi after Telenor took over and we started to see good management (especially the early very successful marketing strategy of the yellow man, if you remember), it was not meant to be a RM3 billion company when Maxis was much larger.

Now, that same comparison is I am going to do with Westport. What do I feel as in comparison against Northport (NCB) and PTP (under MMC Corp). What do I feel about it getting listed after so many years? Just note that the listing is a way for the current shareholders to sell part of their shares - parties such as Li Ka Shing's Hutchison, Gnanalingam's family etc.

On business perspective, I really like Westport as you can see from its financial results. I like it for its focus, maybe older (first generation) management. It has however a second generation whom dwells in the largely failed QPR initiative, selling some of their stocks (after first generation did not) but with a good follow through results. Its financial performance does say something as below:

At its market capitalization of around RM8.5 billion, it is trading at slightly below 24x PE and maybe a forward PE of around 21x.

The question is this - Westport with only port operations is worth RM8.5 billion. Against its competitors, NCB which manages Northport (at RM1.7 billion, while also owning Kontena Nasional) while PTP (among the group of companies under MMC Corp) which is now worth around RM7.8 billion). Just for your information MMC Corp besides owning 70% of PTP, these are what it owns.

With that comparison, should Westport be worth RM8.5 billion? Westport is handling around 7 million TEUs while PTP (around 7.7 million TEUs) and Northport (around 3 million TEUs). This shows that Westport is largely efficient as in managing a similar volume versus PTP and with its parent's other very significant holdings, Westport's value alone overwhelms MMC Corp.

One can argue, we should not look at MMC Corp as it never really bother to price its shares to market anyway. One should not look too far beyond the practice in Tradewinds Plantation where it was later delisted with very good delisted price for the buyer.

But what about Northport? It has been a company which has been largely unexciting in terms of share price although over the last few years, dividends were good. Between the management, I would however vote for Westport but should it be priced that highly against Northport?

The sale by owners

This particular IPO by Westport is quite unique as in they do not raise capital, but it was more of a partial sale by its shareholders. My question is that, why? Pump in more money into QPR? Or is it just that they are able to garner a very good price? If that is the case, then at RM8.5 billion, Westport is very fully valued.


There is still good growth to come out of port operations, but this business is still very competitive. On top of that, the business is also one which needs large capital expenditure which makes me wonder on the non-capital raising thingy through the IPO.

You know what is the other weird thing, the second gen (young - below 40s) sells more than the first gen...(much older - 70 year old). Or could it be not as simple as that?

Just a note, the last few large IPOs in which case the owners have been largely the ones selling rather than raising capital were underperforming against the ones mainly concentrated on capital raising. In investment, I believe in feeding the hungry rather than the fully fed.


Zuo De said...

Interesting, I once own Johor Port and Malakoff until both was taken private. They were both given good dividend.

But your feel is indeed appropriate, feed the hungry (good management).

ronnie said...

Dear Felicity,

The other port operators that are listed on Bursa that you have not mentioned are Integrax and Suria Capital.

Suria Capital is interesting.

It manages and operates 7 key ports in Sabah. The market price of RM2.05 is trading at a discount to NTA of RM2.92.

Earnings growth has been slow over the past few years but the kicker is the move to develop its land through a joint venture with an external party.

Suria owns a lot of prime land around its ports.

The net EPS should be 20sen for FY13. PER is 10x as was FY12. The cheapest port operator on Bursa.

Market cap at RM575mil is a small fraction of Westport's.

There is little institutional following and little research coverage.

Dividend yield is about 3.5%.

Suria Capital merits a second look.

felicity said...

Thanks Ronnie. I believe those 2 have their own merits.
These are slightly different ports as they are not the ports catering to international cargo but rather serves as a special purpose ports.

They do look interesting though.

AdCool said...

We call those ports either as feeder ports or regional ports. They aren't transshipment ports which give the most containers volume.

Port Klang, PTP and PSA Singapore are Transshipment ports, hence the big containers volume.

Indeed, Suria is an interesting counter. It has appreciate much since 2009 from a penny stock around 90 cents to the current level. Dividend is consistent. And if I m not mistaken, either Tabung Haji or KWAP has been accumulating its shares since beginning this year.