Investment Highlights

• We initiate coverage on Bintulu Port Holdings (BiPort) with a BUY and fair value (FV) of RM6.05/share, based on DCF with WACC of 9% and terminal growth rate of 4%. This implies an FY23F PE of 22x, 1 standard deviation above its 5-year average. There are no adjustments for ESG based on our neutral 3-star rating.

• Bintulu Port is the largest liquefied natural gas (LNG) export terminal in East Asia. Petronas uses Bintulu Port’s jetties to facilitate exports of LNG obtained from Petronas-operated Malaysia LNG complex, located next to the port. The complex currently has a production capacity of 29.3mil tonnes per year.

• We expect LNG exports to be resilient as global demand is envisaged to remain robust in light of gas shortages in Europe. Also, there is an abundance of LNG reserves in Malaysia. Malaysia is the 5th largest LNG exporter in the world, accounting for 7% of global LNG exports in 2021 with the bulk of Malaysia’s LNG coming from Sarawak.

• Meanwhile, Samalaju Industrial Port is expected to benefit from an expansion of the Samalaju Industrial Park (SIP), underpinned by the Sarawak Corridor of Renewable Energy (SCORE) initiative. The annual production capacity in SIP is set to increase by 17% in FY22F and 8% in FY23F. Currently, there are 6 investors in SIP.

• SIP’s notable expansions include Press Metal’s 50% increase in production capacity in FY22F – contributing 17% to SIP’s overall production capacity – and the commercial production of Malaysia Phosphate Additives (Sarawak)’s Samalaju Integrated Phosphate Complex in FY23F, which adds 8% to overall capacity.

• Looking further, we expect Wenan Steel’s plant to double SIP’s production capacity in FY25F. We believe that SIP’s growth is sustainable over the next 3 years with access to relatively cheap green electricity and consistent water supply.

• Bintulu Port is currently negotiating a concession renewal and aiming for higher tariffs given that the port’s terminal handling charges are lower compared to its regional peers. Its general cargo tariffs were last revised 39 years ago in 1983 while container tariffs were raised 23 years ago in 1999.

• We like BiPort for: (1) the resilience of the group’s LNG exports supported by long-term contracts with Petronas vs Westport’s more variable containerised throughput; (2) strong growth potential of Samalaju Industrial Port; and (3) stable earnings & dividend yields.

• Risks faced by BiPort include: (i) non-renewal of privatisation agreement; (ii) macroeconomic and geopolitical headwinds affecting LNG demand; and (iii) port congestions, which may depress throughput volume.

Source: AmInvest Research - 12 Sept 2022