• Petronas has confirmed that a fire incident took place at the Sabah-Sarawak Gas Pipeline (SSGP) near KP132, close to Long Ugui, Lawas at 2pm on 16 Nov 2022. According to them, the incident was believed to have involved a third-party contractor performing work unrelated to the SSGP operations nearby the pipeline’s right-of-way area. To date, the explosion has killed one person and injured 2 others.

• Recall that on 21 Sep 2022, there was a pipeline leak caused by soil movement at the vicinity of KP201 near Pa Berunut, Lawas that led to Petronas declaring force majeure on LNG supplies to its customers. The leak affected only the MLNG Dua production facility with a nominal capacity of 9.6mil ton per annum – or 33% of Petronas LNG Complex’s total nominal capacity. Other LNG production facility within the complex had continued to operate as planned. See Exhibit 1 for nominal capacity of each plants in the complex.

• LNG exports make up 49% of total throughput of Bintulu Port Holdings (BiPort), all of which are sourced from Petronas-operated Malaysia LNG complex which has a production capacity of 29.3mil ton per annum.

• Nonetheless, we believe the impact from the leakage is minimal to BiPort, as most of the natural gas in its liquefaction plant are sourced from Sarawak instead of Sabah. Daily natural gas production from Sabah is only 15.2k ton/day, or 18% of Sarawak’s 83.9k ton/day, of which production capacity of MLNG2 amounts to 9.6mil ton/annum, or 263k ton/day.

• The pipeline has a design capacity of 750mil cubic feet/day, and based on 1 ton: 48,700 cubic feet, daily disruption amounts to 15.4k ton of LNG. Assuming 90 days of disruption (from end of Sep 2022 to end of Dec 2022), there will be a shortfall of up to 1.4mil ton of LNG in FY22F, which will only reduce BiPort’s earnings by 4.6%.

• Another mitigating factor is that Petronas can chose to increase production in Sarawak to make up for the shortfall in supply from Sabah.

• Additionally, a gas pipeline leak disruption had occurred in Jan 2018, and BiPort’s PAT only fell 3% in FY18 from FY17.

• We maintain BUY on BiPort with a DCF-based fair value of RM6.05/share (WACC: 9%, terminal growth rate: 4%), this implies an FY23F PE of 22x – 1 standard deviation above its 5-year mean of 20x.

Source: AmInvest Research - 17 Nov 2022