Within expectations. Out of the 3 companies under our coverage, Bintulu Port (Biport) exceeded expectations while Westports and Suria Capital came in within expectations. BiPort's outperformance was driven by resilient LNG demand, higher base support services and higher handling of manganese at Samalaju Port, which were reflected by a 12% YoY rise in its port revenue in 1HFY24.
Sector core net profit improved by 19% YoY in 1HFY24. All 3 companies under our coverage registered positive CNP growth YoY. This was supported by strong regional trade flows, driven by multinationals' China+1 strategy, which led to more foreign investors setting up factories in Southeast Asia.
SHSCFI tapered off. The Shanghai Containerised Freight Index (SHSCFI), which tracks spot rates for containers loaded in Shanghai, fell 27% in the first week of September to 2,726.58 pts from its YTD peak of 3,734 points in the first week of July 2024. The surge in July can be attributed to clients front-loading stocks, creating pulled-forward demand, and causing peak season to start off early.
This decline in freight rates signals a relief from congestion at major ports, alongside capacity growth now slowly outpacing demand. However, we think that rates will remain above 2023 levels and are poised to stay elevated from the ongoing Red Sea shipping diversion, which continues to affect global logistic flows.
No decrease in LNG shipments for BiPort. There were a series of disruptions for LNG operations in 2QFY24 and 3QFY24. On 10 May 2024, Petronas-owned LNG facility in Bintulu was struck by power outage, and fully resumed operations 9 days after that. Another disruption occurred in August 2024 involving 2 production trains in MLNG 3. We gather that LNG export volumes were not affected. Both MLNG and Petronas will defer and optimise LNG shipments in 2HFY24 to meet their yearly contractual agreements. As a result, earnings for 2HFY24 are expected to be better due to deferred cargoes from 1HFY24.
State takeover of Bintulu Port by end-2024. On 17 July, a bill to repeal Bintulu Port Authority Act 1981 was approved. The next step is for the bill to be gazetted and enforced as law. The agreement is expected to be finalised by the end of 2024, coinciding with the expirations of the current 2-year interim concession in December 2024. Hence, we assume the new concession will commence in January 2025 for a period of 30 years.
Finalised deal with DP World. Recall that Suria's wholly owned Sabah Ports (SPSB) entered into a conditional share subscription agreement with DP World in April 2024 to jointly develop, manage, and operate Sepangar Bay Container Port (SBCP). On 9 September 2024, Sabah Ports finalised a collaboration agreement with DP World after meeting all necessary conditions. Currently, SBCP is undergoing a large-scale expansion to substantively increase its annual handling capacity from 0.5mil twenty-foot equivalent units (TEUs) to 1.25mil TEUs by February 2025. This collaboration will benefit SPSB through DP World's global logistics expertise and network. Meanwhile, DP World can leverage on the growing trade in the Brunei-Indonesia- Malaysia-Philippines East ASEAN growth region and economic growth from Indonesia's capital relocation to Nusantara.
Tariff hikes remain in the spotlight. We are optimistic about the long-awaited revision of Sabah's port tariffs, which have remained unchanged for the past 35 years. The Sabah state cabinet approved the tariff revision in principle in 2020 to be implemented later. We believe that the takeover of Bintulu Port by the Sarawak state by end-2024 will raise the prospects for the tariff hike implementation.
Maintain Overweight rating on the port sector due to the: i) resilient Intra-Asian trade, ii) incremental volume from Samalaju Port, iii) stronger LNG demand in 2HFY24 as the northern hemisphere enters winter season, and iv) prospective hike in tariffs. Hence, we reiterate our BUY calls in Bintulu Port (FV: RM7.30/share) and Suria Capital (FV: RM2.55/share).
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....