Kenanga Research & Investment

Bintulu Port Holdings - LNG Shipments Bedrock of Earnings

Publish date: Mon, 28 Aug 2023, 11:00 AM

BIPORT’s 1HFY23 results met expectations. Its 1HFY23 net profit eased 27% YoY on weak cargo volumes as China’s reopening failed to significantly lift the demand for LNG, aluminium and manganese. On a brighter note, LNG exports to Japan and South Korea have remained brisk and will pick up further in 2H ahead of the winter months. We maintain forecasts, TP of RM5.55 and OUTPERFORM call.

BIPORT’s 1HFY23 results came in at only 40% and 43% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectations as we expect a stronger 2H on higher LNG shipments ahead of the winter months.

It declared a second interim NDPS of 3.0 sen (ex-date: 15 Sept; payment date: 05 Oct 2023) in 2QFY23 vs. 3.0 sen paid in 2QFY22, with total 1HFY23 NDPS at 6.0sen (1HFY22 at 8.0 sen), within expectation.

YoY, BIPORT’s 1HFY23 revenue fell 7% mainly dragged by a weak top line contribution from Samalaju Industrial Port (-18%), we believe, due to weaker cargo volumes from key customers, i.e. PMETAL (OP; TP: RM5.74) and OMH (OP; TP:RM2.95), partially mitigated by a slight recovery in cargo volume for 2QFY23.

Its LNG cargo volume grew 0.2% on stronger demand from Japan and South Korea, overshadowed the weaker demand from China. 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.

Its core net profit fell by a larger magnitude of 27% 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, and (ii) the increase in staff cost (annual bonus payment) but partially mitigated by the lower effective tax rate of 23.2% compared to 26.0% in 1HFY22.

QoQ, BIPORT’s 2QFY23 revenue fell 6% mainly dragged by a weak top line contribution from Bintulu Port (-9%) due to lower LNG demand from China, partially mitigated by stronger Samalaju Industrial Port (+7%), which in turn minimised the contraction in its EBIT margin given the higher port tariffs it enjoyed (vs. Bintulu Port). With a lower effective tax rate of 16.8% compared to 29.0% in 1QFY23, its core net profit rose 6%.

Forecasts. Maintained

We also maintained our DCF-derived TP of RM5.55 (WACC: 5.8%; TG: 2%). 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 the challenges in China’s economy at present will have a bearing on the demand for aluminium and manganese. Consequentially, the inbound and outbound cargo volumes from Samalaju Industrial Port key customers, i.e. PMETAL and OMH may not pick up significantly over the immediate term. However, we believe its key customers have an edge over their peers in the international market as their products have low-carbon footprint given the hydro power input. Also, as it stands today, 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 - 28 Aug 2023

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