- We maintain HOLD on Bintulu Port with an unchanged DCF-derived fair value of RM7.36/share, which implies a PE of 20x FY15F EPS of 36 sen.

- Press Metal yesterday announced it is doubling the capacity of its Samalaju aluminium smelter to 640,000 MT under a phase 3 expansion programme.

- PMetal could utilise two-thirds of the additional 320,000 MT capacity by 2016, and the remainder by early 2018, Land clearing works have begun on the site.

- This is positive news for BiPort, which is already benefiting from PMetal’s plant in Samalaju. Currently, BiPort’s throughput include ~860,000MT and 18,000 TEUs of alumina, aluminium, anode carbon and other cargo from PMetal.

- The additional capacity will result in a doubling of throughput emanating from PMetal’s plant. An additional 574,000MT (2/3 of full capacity) of cargo represents 3%-4% of our non-LNG cargo tonnage assumptions for FY14F-FY17F.

- For FY13, non-LNG tonnage represents ~24% of total group revenue. We expect that to increase stemming from the Samalaju Industrial Park, to between 26% and 42% for the next four years.

- We are however neutral on this, as the impact to FY16F earnings would not be significant, at +1%. Everything else equal, including an annual revenue growth assumption of 3% for FY18-FY24, and assuming the utilisation of two-thirds of the new capacity by FY16F, our DCF value for the stock would also rise by ~1%.

- BiPort is a transition phase as it would soon have to deal with a proposal for the LNG cargo tariffs to be reduced. This would result in a substantial reduction in LNG cargo revenue and earnings. LNG remains as the single largest contributor to revenue, at 67% in the six months to 30 June 2014 (FY13: 69%).

- We expect the anticipated reduction in LNG cargo tariff rates to be made up by increases in the non-LNG cargo rates and reduction in lease rentals. We have incorporated for such a scenario by 2016. We expect earnings growth to be flat for FY14F and BiPort would also be impacted by start-up costs for Samalaju Port.

- Hold for dividend yield of ~4%.

Source: AmeSecurities