Westports ups capacity amid supply constraints

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SUPPLY chain disruptions have necessitated a change in the way Westports Holdings Bhd handles cargo that goes through Port Klang.

The largest public listed port operator in the country, which services the main entry point for cargo to central Peninsular Malaysia and a key port along the Straits of Malacca, has allocated some capital to this new development accordingly.

These supply chain disruptions are a common occurrence these days and this is not just prevalent in Malaysia but globally, having caused a backlog of sorts within the global supply chain.

It is caused by the numerous factory or plant shutdowns occurring in parts of the world as the Covid-19 pandemic continues to rage on.

Being on the receiving end of this, Westports has allocated money to increase its yard capacity accordingly.

The container yard is the space within the port that has been earmarked for the stacking of containers.

WestportsWestports

Import, export and transshipment containers are placed within the container yard while awaiting the containers’ next destination.

“Containers now tend to stay longer in our ports which is not great because we would rather it have a quicker turnaround time. But they are staying longer because there are so many supply chain disruptions: mainly due to border controls and the lockdowns occurring in some countries,” Westports’ group managing director Datuk Ruben Emir Gnanalingam tells StarBizWeek.

“When one country goes into lockdown, it means that the cargo can’t go into the retail area since they are closed. What this means is that the warehouses are then full: the port cannot get the goods to the warehouse and this causes the whole supply chain to be backed up,” Ruben says.

He notes that this phenomenon is not just isolated to the company but to other ports around the world which have become very full, thus being unable to accept new cargo anymore.

“It is much harder to operate when it becomes so full. Typically, our yard is not this highly utilised and at the moment it is at 90%-100% utilisation from 70%-80% in a normal year. It is not just happening here, but around the world. Goods are not flowing as how they should normally,” Ruben says.

“This is also the reason why there is a shortage of containers since goods are staying in containers longer than they normally would. A round-trip (shipping) is now taking longer than they normally would. It is not really a shortage in containers per se but because turnaround times are now longer per cycle,” he adds.

This has necessitated Westports to build a new container yard to expand this by 19 acres which is anticipated to complete earliest by the end of this year.

“We have to do this as the yard is so heavily utilised now. Once this is done, our utilisation would drop slightly,” Ruben says.

The company last year completed container yard Zone Z at CT9 which cost RM81mil and by end-2021, it will see another additional 19-acre container terminal yard eight being completed.

Capital expenditure allocated for this and for more terminal operating equipment would be RM300mil to RM400mil for the financial year 2021 (FY21) and FY22 ending Dec 31. “This would be funded internally with our operating cashflows,” he says.

Westports exportsWestports exports

Meanwhile, Westports this year is resuming its dividend policy of paying 75% of its net profit back to shareholders.

“We had only lowered it last year to 60% as we were a bit concerned with the pandemic and we wanted to preserve more cash. Since we now understand the pandemic a bit better, we can go back to the normal dividend policy of 75% as in the past 10 years,” Ruben says.

Westports recently announced its second quarter earnings in which it saw its net profit rising by 32.5% year-on-year (y-o-y) for the quarter to RM177.97mil on the back of revenues rising 17% y-o-y to RM505.07mil.

Commenting on this, Ruben says growth in the second quarter could have been even more in terms of volume if not for the supply chain issues that are happening globally.

“Since cargoes are being stuck in Westports for a longer time, we have also earned more storage revenues from this. Growth that was seen in the second quarter is a combination in the growth of volume and storage as well,” he says.

“Compared to the previous year’s second quarter, it has to be noted that it was a quarter with a low base as well as the pandemic just started then and all countries were in lockdown at the same time in the second quarter last year. But even without this factor, trade volume of goods were still generally growing,” he adds.

For the whole of FY21, the company is expecting to grow by up to 5% in revenue since last year’s third quarter is from a high base.

“The third quarter last year was a very high base and I don’t think we would achieve the same level (this year). In general I don’t think the double-digit growth (in the second quarter) can be sustained,” Ruben says.

Supply chain matters aside, the port operator could see more institutional investor interest in its shares following its recent inclusion into the new FTSE4Good Bursa Malaysia Shariah-Compliant Index.

This also comes at a time when increasing attention is being placed on companies that are operating in the global supply chain.



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