Kenanga Research & Investment

Bintulu Port Holdings - No China Reopening Cheer

Publish date: Thu, 01 Jun 2023, 10:05 AM

BIPORT’s 1QFY23 results disappointed on a slowdown in cargo volume at Samalaju Industrial Port as China’s reopening failed to significantly lift the demand for aluminium and manganese. On a brighter note, LNG shipments remained strong on brisk exports to Japan and South Korea. We cut our FY23-24F earnings forecasts by 19% each, reduce our TP by 8% to RM5.55 (from RM6.00) but maintain our OUTPERFORM call.

1QFY23 core net profit of RM22.5m disappointed, coming in at only 16% each of both our full-year forecast and the full-year consensus estimate. The key variance against our forecast came largely from a weaker-thanexpected cargo volume handled at Samalaju Industrial Port, we believe particularly, inbound and outbound cargoes from key customers, i.e. PMETAL (OP: TP: RM5.74) and OMH (OP; TP: RM2.95). It declared a first interim NDPS of 3.0 sen (ex-date: 13 Jul; payment date: 02 Aug 2023) in 1QFY23 vs. 5.0 sen paid in 1QFY22, below expectation.

Results’ highlights. 1QFY23 revenue fell 5% YoY and 6% QoQ, mainly dragged by a weak top line contribution from Samalaju Industrial Port (- 23% YoY, -16% QoQ), we believe, due to weaker cargo volumes from key customers, i.e. PMETAL and OMH, partially mitigated by stable revenue growth at Bintulu Port.

LNG cargo volume grew 7% YoY on stronger demand from Japan and South Korea. On the other hand, the non-LNG segment (comprising dry bulk, break bulk, liquid bulk and containerised cargoes) was negatively impacted by lower plantation activities (import of fertiliser, export of palm products) due to labour shortages and weaker inbound and outbound cargoes (import of alumina, coal and coke, export of aluminium and manganese) from heavy industries in Samalaju Industrial Park.

Core net profit fell by a larger magnitude of 45% YoY and 14% QoQ largely due to the volume contraction at the more profitable Samalaju Industrial Port (vs. Bintulu Port) given the higher port tariffs it enjoyed (vs. Bintulu Port). Not helping either, were: (i) the higher fuel cost, (ii) the increase in staff cost (annual bonus payment), and (iii) a higher effective tax rate at 29% vs. 27% in 1QFY22 and 25% in 4QFY22.

Forecasts. We cut our FY23-24F earnings forecasts by 19% each as we moderate our non-LNG cargo volume assumptions by 11% to 24.5m in FY23F and 26.0m in FY24F.

Consequently, we reduce our DCF-derived TP by 8% to RM5.55 (WACC: 5.8%; TG: 2%) from RM6.00. There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 3).

Outlook. We acknowledge that contrary to expectations, China’s reopening has not significantly lifted the demand for aluminium and manganese. Consequentially, the inbound and outbound cargo volumes from Samalaju Industrial Port key customers, i.e. PMETAL and OMH, have not seen strong growth. However, we believe its key customers have an edge over their peers in the international market because their products are low-carbon footprint in nature given the hydro power input. Also, as it stands today, the Western countries still have outstanding sanctions on Russian aluminium (that makes up c.6% of world aluminium production) and hence will have to look for alternative sources of aluminium supply.

We continue to like BIPORT for: (i) its steady income stream from handling LNG cargoes for Malaysia LNG Sdn Bhd (that typically makes up close to 50% of its total profit), (ii) it could potentially enjoy a step-up in earnings if Bintulu Port is granted a significant hike in its port tariffs, and (iii) the tremendous growth potential of Samalaju Industrial Port backed by rising investment in heavy industries in Samalaju Industrial Park. Maintain OUTPERFORM.

Risks to our call include: (i) inability of Bintulu Port to secure an adequate port tariff hike to offset escalating operating cost, and (ii) a global recession hurting heavy industries in Samalaju Industrial Park.

Source: Kenanga Research - 1 Jun 2023

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