Investment Highlights

• We maintain BUY on Bintulu Port (BiPort) with unchanged DCF-derived fair value (FV) of RM5.77/share. 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.

• Our forecasts are maintained as BiPort’s 1HFY23 core net profit (CNP) of RM46mil was generally within the expectation, making up 46% of our FY23F earnings and 43% of consensus estimates, as we expect a stronger 2HFY23 on increasing throughput volume.

• BiPort has declared a DPS of 6 sen for 1HFY23, which makes up 55% 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.

• 1HFY23 CNP decreased 27% YoY, driven by 7% decline YoY 1HFY23 revenue to RM364bil due to lower revenue handling of LNG cargo and marine services to Darussalam Pilotage Services (DPS). This was further exacerbated by higher recognition of finance cost of the lease concession for Bintulu Port on interim arrangement for the period of 2 years.

• On a sequential basis, 2QFY23 operating revenue declined 6% due to lower LNG cargo throughput. Nevertheless, 2QFY23 CNP of RM24mil is higher by 6% due to absence of staff performance bonus, which was incurred in the preceding quarter.

• 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 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) Expected expansion of LNG operation by Petronas through a third floating LNG vessel nearshored in Sabah by 2027; 3) 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 23x, below its 5-year peak of 25x.

Source: AmInvest Research - 28 Aug 2023