CIMB Equities Research is retaining its Hold call for Westports with an unchanged target price of RM4.45, which is just 4% above the current price of RM4.28.

It said on Thursday Westports' low transshipment tariffs make it likely that it will get other carriers to take the place of CMA CGM, in the event that the latter transfers some cargoes to Singapore.

"The key upside for Westports is if a new concession for container terminal (CT) 10 is signed, while the key downside risk is if it fails to make up for the potentially lost CMA CGM transshipment cargoes," it said.

To recap, on June 15, CMA CGM said it will sign a 49:51 JV agreement with the Port of Singapore to own and operate four berths in Pasir Panjang Terminal Phases 3 and 4. It was also later quoted it would transfer around one million twenty-foot equivalent units (TEUs) transshipment boxes from Westports to Singapore.

CIMB Research said the commitment to Singapore happened in the context of its offer to buy all of NOL, and the need to convince Singaporean investors to tender their shares to CMA CGM.

Also, Temasek may have hammered a deal with CMA CGM, whereby the former agreed to sell in return for some guarantees for the future of the port of Singapore.

"We understand that CMA CGM's four berths will have an initial annual capacity of three million TEUs when it starts operations in 26, rising to four million TEUs by 2018 once all of the quay cranes are in place," it said.

CMA CGM and APL (NOL's container shipping arm) now handle almost three million TEUs a year, so the remaining one million TEUs may be transferred from Westports to Singapore over 2017-2018. So the impact will not be immediate, and this will give Westports time to make up the difference from other carriers.

Apart from CMA CGM (and APL), the OCEAN alliance will comprise of COSCON (and CSCL), Evergreen and OOCL. At the moment, CMA CGM and CSCL tranship at Westports, while COSCON and OOCL tranship at Singapore.

Both Westports and Singapore are expected to remain as transshipment ports for the OCEAN alliance, so that leaves the Port of Tanjung Pelepas (PTP) which is used as Evergreen's transshipment hub in Asean.

Evergreen could potentially move its transshipment hub to Westports, or perhaps to Singapore, although the latter scenario is the less likely one. It does not make sense for the OCEAN alliance to have three Southeast Asian hubs.

OOCL is also open to dual hubbing. In the end, the OCEAN alliance is likely to work together to structure services in such a way that some will tranship at Westports and others at Singapore. All carriers will then spread their transshipment cargoes across both ports.

CIMB Research said the alliance, which is in the process of being formed, will likely comprise of three Japanese carriers (NYK, K Line, MOL) with Hanjin, Hapag-Lloyd, and Yang Ming.

These carriers have traditionally transhipped in Singapore, but selected carriers may be open to tranship in Westports in the future. For instance, UASC currently transships in Westports and may seek to merge with Hapag-Lloyd. UASC may or may not be able to exert some influence to pull in the alliance's transshipment volumes into Westports.

"The OCEAN and the alliances are in the process of working out their new service structures, which should be announced by September 2016, and implemented from April 2017. So we will only need to wait about three more months to see what the new container shipping landscape will mean for Westports," said the research house

Source: Hellenic Shipping News