Someone once told me that you can see Singapore as a toll booth. Most trading ships and vessels need to pass through Singapore. So as long as there is trading done between the East and the West, Singapore will survive. After all, every ship that passes through Singapore might need to dock here and that is how we earn our ?toll?.
Although it was meant to be a joke, there is some truth in it. Singapore is an established trading hub for traders from all over the world. The PSA Singapore Terminals handled more than 30 million TEUs (twenty foot…
Someone once told me that you can see Singapore as a toll booth. Most trading ships and vessels need to pass through Singapore. So as long as there is trading done between the East and the West, Singapore will survive. After all, every ship that passes through Singapore might need to dock here and that is how we earn our “toll”.
Although it was meant to be a joke, there is some truth in it. Singapore is an established trading hub for traders from all over the world. The PSA Singapore Terminals handled more than 30 million TEUs (twenty foot equivalent units) of containers in the ports of Singapore in 2015 alone. Just think about the volume of business seen at the terminals. Unfortunately, investors in Singapore are not able to invest in PSA Singapore Terminals.
But, there might be over avenues for investing in ports. Listed in Bursa Malaysia (Malaysia’s stock exchange) is Westports Holdings Bhd (KLSE:5246.KL), one of the leading port terminal operators in Malaysia.
The company, which controls more than 70% of the cargo flowing through Port Klang, Malaysia’s busiest port, has a market capitalisation of RM13.8 billion (S$4.6 billion). That is slightly smaller than the US$4.3 billion market cap that the Singapore-listed Hutchison Port Holdings Trust (SGX: NS8U) has. Hutchison Port Holdings Trust is an owner of container ports in Hong Kong and China.
Westports Holdings’ size
As mentioned, PSA Singapore Terminals handled over 30 million TEUs (30.6 million to be exact) of volume in 2015, representing roughly 55% of the traffic through the Straits of Malacca.
Westports Holdings is significantly smaller, with volume of just 8.4 million TEUs in 2014. For context, Hutchison Port Holdings Trust had seen volume of over 24 million TEUs in 2014, nearly triple the size of Westports Holdings.
Revenue and profitability
In terms of revenue, Westports Holdings is also much smaller than Hutchison Port Holdings Trust. The former had recorded revenue of RM1.7 billion (HK$3.2 billion) in 2015 whereas the selfsame figure for the latter was HK$12.6 billion.
Given that Hutchison Port Holdings Trust has thrice the volume of Westports Holdings and yet earns quadruple the revenue, it seems reasonable to assume that Hutchison Port Holdings Trusts’ ports are charging a higher rate per TEU.
But, the bottom-line is more important to investors than revenue. In terms of profitability, Westports Holdings had a net income of RM505 million (HK$950 million) in 2015, which works out to a net income margin of 30%. Hutchison Port Holdings Trust, on the other hand, had a net income margin of just 13.8% in 2015, giving it net income of HK$1.74 billion in the year.
So, Westports Holdings seems to be much better managed with its higher profit margin.
As mentioned earlier, Wesports Holdings has a similar market capitalisation to Hutchison Port Holdings Trust. This is despite the former having lower revenue and profit and handling a lower TEU annually when compared to the latter.
Put another way, Westports Holdings has a higher valuation than Hutchison Port Holdings Trust. Given Westports Holdings’ better profitability, it may come as no surprise. At their current prices, the Malaysian company is trading at 27 times trailing earnings and offers a yield of only 2.8%. Hutchison Port Holdings Trust on the other hand has a price-to-earnings (PE) ratio of 20 and has a mouth-watering yield of around 9%.
Meanwhile, if you'd like more investing analyses and to be updated about the latest company and stock market news, you can sign up for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore.
Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.