Kenanga Research & Investment

Bintulu Port Holdings - Sign of Recovery, But Priced In

Publish date: Mon, 27 Nov 2023, 10:40 AM

BIPORT’s 9MFY23 results met expectations. Its 3QFY23 core net profit jumped 37% QoQ on a pick-up in cargo volumes. The slowdown in China will have a direct bearing on both its LNG and non-LNG cargo throughput. We maintain our forecasts, TP of RM5.55 but downgrade our call to MARKET PERFORM from OUTPERFORM as the upside to its share price has been exhausted.

BIPORT’s 9MFY23 core net profit came in at only 68% and 73% of our full-year forecast and the full-year consensus estimate, respectively. However, we consider the results within expectation as we expect a seasonally strong 4Q.

It declared a third interim NDPS of 3.0 sen (ex-date: 12 Dec; payment date: 28 Dec 2023). Its 9MFY23 cumulative NDPS stands at 9.0 sen, on track to meet our FY23H full-year assumption of 13.0 sen.

YoY, BIPORT’s 9MFY23 revenue fell 7% due to a weak top line performance from Samalaju Industrial Port (-17%), we believe, due to weaker cargo volumes from key customers, i.e. PMETAL (MP; TP: RM5.00) and OMH (OP; TP: RM2.07). Its LNG cargo volume fell 2% on weaker demand from China, partially offset by the demand from Japan and South Korea. On the other hand, the non-LNG segment (comprising dry bulk, break bulk, liquid bulk and containerised cargoes) fell 11% due to lower plantation throughput (i.e. the import of fertilisers, the export of palm products) and weaker inbound and outbound cargoes from heavy industries in Samalaju Industrial Park (i.e. the import of alumina, coal and coke, the export of aluminium and manganese).

Its core net profit fell by a steeper 14% largely due to a more significant volume contraction at the high-margin Samalaju Industrial Port (vs. Bintulu Port) given the higher port tariffs it enjoyed (vs. Bintulu Port). Not helping either were the higher fuel and staff costs, partially mitigated by reduced finance cost and a lower effective tax rate.

QoQ, BIPORT’s 3QFY23 revenue rose 5% driven by recovery in both Bintulu Port (+4%) due to recovery of LNG demand from China, and Samalaju Industrial Port (+8%) from a pick-up in cargo volumes from key customers, i.e. PMETAL and OMH.

Its core net profit rose by a steeper 37% on a volume expansion at the high-margin Samalaju Industrial Port (vs. Bintulu Port) given the higher port tariffs it enjoyed (vs. Bintulu Port), and lower finance cost under an interim lease arrangement (from Jan 2023 to Dec 2024) for Bintulu Port.

Forecasts. Maintained

We also maintained our DCF-derived TP at RM5.55 (WACC: 5.5%; 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. However, we are starting to see a recovery in inbound and outbound cargo volumes from Samalaju Industrial Port key customers, i.e. PMETAL and OMH in 3QFY23. 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.

On the other hand, Bintulu Port Authority (BPA) is in the process of transferring its control from the Federal government to the Sarawak government. Concurrently, Bintulu Port is under an interim lease agreement until Dec 2024 pending the completion of the handover of BPA control.

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) a potential 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. However, the upside to its share price is limited after the recent recovery in its share price. Downgrade to MARKET PERFORM from 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 - 27 Nov 2023

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