Investment Highlights

• We maintain BUY on Bintulu Port (BiPort) with a lower DCF-derived fair value (FV) of RM5.77/share (vs RM6.08/share previously). Our DCF is based on a WACC of 9% and terminal growth rate of 4%.

• Our FV also implies a FY23F PE of 23x, 1 standard deviation above its 5-year average PE of 15x. There is no FV adjustments for ESG based on our 3-star rating.

• BiPort’s 1QFY23 core net profit (CNP) of RM23mil was below expectations, making up 17% of both our FY23F earnings and consensus estimates.

• The deviation was mainly due to higher finance cost, which came about as a result of the extension of lease concession in Jan 2023. Hence, we lower our FY23F- 24F earnings by 24% to account for the higher finance cost pending finalisation of the concession agreement, which is expected to take place by mid-2024F.

• BiPort has declared a DPS of 3 sen for 1QFY23, which makes up 27% of our FY23F DPS of 11 sen, based on a pay-out ratio of 50%. Although BiPort does not have a dividend policy, the group has been generous to shareholders with an average yearly pay-out ratio of 50% from FY17 to FY22.

• Port operating revenue fell 6% YoY to RM178mil in 1QFY23 due to weaker non-LNG cargo handled in Samalaju Industrial Port. We believe that demand for manganese industries decreased in 1QFY23. The lower revenue coupled with increased finance cost resulted in CNP falling by 45% YoY to RM23mil in 1QFY23.

• 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 mid-2024F.

• We are optimistic on BiPort’s long-term outlook due to: 1) LNG demand expected to remain strong as Europe aims to reduce dependency on Russian gas; and 2) Throughput growth envisaged to be underpinned by Samalaju Industrial Port and new industries such as sulphur. We also like BiPort for its consistent dividend payout of 50%.

• 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 a decent FY24F PE of 22x, below its 5-year peak of 25x.

Source: AmInvest Research - 1 Jun 2023