Investment Highlights

• We maintain BUY on Bintulu Port (BiPort) with a higher DCF- derived fair value (FV) of RM6.50/share (WACC; 9%, TG; 3.5%) vs. RM6.05/share previously. We raise our terminal growth to 3.5% from 3% to reflect BiPort’s bright prospects against the backdrop of a potential tariff revision this year. Our FV implies a FY24F PE of 23x, a 1.4 standard deviation above its 5-year average PE of 15x. There is no FV adjustment for ESG based on our 3-star rating.

• BiPort’s FY23 core net profit (CNP) of RM125mil was 12% above our estimate and 8% above streets’. The deviation was mainly due to lower net interest expense. BiPort’s interest expense fell to RM36mil in FY23 from RM48mil in FY22.

• The lower-than expected net interest charges arose from a one-off adjustment of lease amortisation charges. This is pursuant to Bintulu Port’s interim agreement with the state. Hence, we have raised FY24F-FY26F earnings for BIPort by 12% to account for this.

• BiPort has declared a DPS of 3 sen for 4QFY23, bringing total gross DPS to 12 sen (vs. FY22: 14 sen), which is in line with our estimate. This translates to a dividend payout ratio of 44%.

• YoY, BiPort’s FY23 core net profit declined by 2% due to lower port operating revenue (-4% YoY). The reduction can be attributed to lower contribution from Bintulu Port (-1.2% YoY) and Samalaju Industrial Port (-12% YoY).

• Bintulu Port recorded flat LNG cargo throughput in FY23 due to lower exports to China and imports from key Asian markets. Meanwhile, Samalaju Industrial Port’s (SIP) non- LNG cargoes recorded an 8% decline in throughput due to lower inbound and outbound cargoes (import of steel, export of timber, aluminium & manganese) from heavy industries.

• QoQ, 4QFY23 CNP surged by 43% to RM46mil, driven by strong LNG (+19%) throughput. This was due to higher LNG shipments going to countries that entered the winter season such as Japan, South Korea and China. In addition, improved demand for bulk cargoes contributed to higher non-LNG throughput (+12% QoQ) as key players like Press Metal and OM Materials restocked their inventories for FY24F.

• We are optimistic on BiPort’s mid-term to long-term outlook due to:
  
  1) Potential tariff revisions, which will be implemented in stages starting from 2025F onwards. BP’s general cargo tariffs were last revised in 1983 and container tariffs in 1999.
  
  2) First targeted shipment in July 2024 from Sarawak Petchem’s methanol plant, which will contribute up to 600,000 tonnes of liquid bulk cargo annually.
  
  3) Bintulu International Container Terminal (BICT) benefiting from additional container throughput from Sarawak Medical Innovation Technology Hub. The first medical glove container shipment will begin in 2025F.
  
  5) Improving throughput prospects for SIP with Ocikumho commencing production of up to 100 kilotonnes per annum (kTPA) of epichlorohydrin (epoxy resin compound) in FY25F and Wenan Steel up to 5.7mil tonnes per annum (TPA) in FY26F; and
  
  6) Expansion of LNG operations by Petronas through a third floating LNG vessel nearshored in Sabah in 2027F.

• Key risks to our call are i) delays in the new privatisation agreement, ii) macroeconomic and geopolitical uncertainties affecting LNG demand, and iii) port congestion, which may depress throughput volume.

• The stock currently trades at a decent FY24F PE of 20x, below its 5-year peak of 23x.

Source: AmInvest Research - 1 Mar 2024