Investment Highlights

• We make no changes to our earnings forecasts for FY17- 19F. Maintain HOLD, with a DCF-based fair value of RM6.72/share (WACC 5.2%, terminal growth rate 0.5%).

• Bintulu Port’s 1HFY17 net earnings grew 6.2% YoY to RM74.4mil. The results came in within expectations, making up 48% of our full-year forecast and 49% of consensus. A second interim dividend of 4.0 sen per share was declared, as expected.

• The positive performance was attributed to the strong growth in operating revenue recorded in 1HFY17. Operating revenue grew 13.0% YoY to RM315.4mil, mainly due to higher revenue from LNG, container, bulk fertiliser and other services.

• Both the port services and bulking services at Bintulu Port recorded positive YoY revenue and earnings growth in 1HFY17. Revenue for port services increased 9.5% YoY to RM284.6mil, with pre-tax profit jumping 29.8% YoY to RM112.7mil. Revenue from bulking services grew 13.1% YoY to RM18.3mil, while pre-tax profit surged 34.6% YoY to RM9.2mil in 1H17.

• Bintulu Port’s Samalaju Industrial Port also recorded strong revenue growth in 1HFY17. Revenue from the port’s operation in 1HFY17 expanded 324% YoY to RM8.5mil. However, this port incurred a pre-tax loss of RM7.8mil compared to a RM3.3mil pre-tax profit in 1HFY17.

• Samalaju Industrial Port was ready for commencement of Phase 1 operation from 1 June 2017, and full operation is expected from 2H17, which should contribute to higher revenue in FY17 compared to FY16. However, we expect the expenditure relating to amortization of equipment, infrastructure and concession assets as well as the higher finance charges related to the sukuk issuance for the port’s financing to have a negative impact on the overall performance of the group. The cargoes include alumina, manganese ore, silica quartz and coke.

• We expect the handling of LNG vessel calls and cargoes to remain as the main revenue contributor the group in FY17. We also anticipate an increase in throughput from palm oil, palm kernel, and containerised cargoes to contribute towards positive overall revenue and earnings growth for the group in FY17. However, due to the expected losses from the recognition of expenditure at Samalaju Industrial Port upon its full operation, we expect a lower profitability for Bintulu Post in FY17 compared to the previous year.

Source: AmInvest Research - 25 Aug 2017