Investment Highlights

• We maintain BUY on Bintulu Port (BiPort) with a DCFderived fair value (FV) of RM6.08/share, based on a WACC of 9% and terminal growth rate of 4%. Our FV implies a FY23F PE of 17.2x, 0.5 standard deviation above its 5-year average PE of 15x. There is no FV adjustment for ESG based on our 3-star rating.

• We are cautious on the short-term outlook for BiPort’s port operations due to uncertainties in the global economy. For now, however, we maintain our 4% growth in BiPort’s FY23F throughput volume.

• The export volume index fell 13% to 149.5 points in Feb 2023 from 171.4 points in Dec 2022 before recovering 14% to 171.1 points in Mar 2023. Similarly, the import volume index also dipped 10% to 164.1 points in Feb 2023 from 182.1 points in Dec 2022 prior to its 11% gain to 181.7points in Mar 2023 (Exhibit 1).

• Looking ahead, we expect BiPort’s throughput growth to be supported by the following memoranda of understanding (MoUs), which were inked in FY22:
  • Bintulu Port Authority, Bintulu Port and Sarawak Petchem to establish and operate a methanol jetty, which will help BiPort diversify its liquid cargo business from FY24F. The jetty will facilitate the exports obtained from the methanol plant in the Sarawak Petrochemical Hub, which is expected to have a production capacity of 1.75 MTPA; and
     
  • Bintulu Port, Sarawak Shell and PTT Exploration and Production Public Co to collaborate on the storage and handling of sulphur at Bintulu Port;
     
  • Samalaju Industrial Port and ZR Industrial Group, which is currently developing an integrated steel plant in Samalaju Industrial Park.
     
• Bintulu Port’s concession expired on 31 Dec 2022 with the option to extend for another 30 years until 2052. The extension has been approved in principle, and BiPort as well as Bintulu Port Authority are in the midst of finalising the terms and conditions for the new concession agreement.

• An interim agreement was signed on 24 Nov 2022 to continue operating Bintulu Port for an interim period of 6 months from 1 Jan 2023 onwards. The interim period has since been extended by 12 months from 1 July 2023, with further extension of 6 months in the event the new privatisation agreement has yet to be finalised and executed. We expect the terms to be finalised – with a potential tariff revision – by mid2024.

• We are optimistic on BiPort’s outlook as (i) LNG demand remains strong and resilient as Europe reduces dependency on Russian gas; (ii) throughput growth from handling of sulphur and methanol in Bintulu Port; (iii) growth potential of Samalaju Industrial Port, underpinned by the Sarawak Corridor of Renewable Energy; and (iv) stable earnings and dividend yields.

• Key risks are (i) macroeconomic and geopolitical uncertainties affecting LNG demand; and (ii) port congestion which may depress throughput volume.
   
• The Stock Currently Trades at An Attractive FY23F PE of 17.2x, Below Its 5-year Peak of 25x.

Source: AmInvest Research - 11 May 2023