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

- BiPort may undertake its Sukuk issuance by early next year, group company secretary Nik Abd Rahman Nik Ismail told us at a meeting in Kuching recently.

- We have estimated the total issuance to be at RM700milRM800mil. It will be backed by the extension of its existing 30-year concession of Bintulu Port by another 30 years. Its current concession period ends in 2022.

- The proceeds will be used to fund the construction of its second port at the Samalaju Industrial Park. The Samalaju Port will require a total investment of RM1.8bil. The capex will be funded by the equity portion of RM600mil, a federal government facilitation grant of RM500mil and the rest from the Sukuk issuance.

- We expect BiPort’s net gearing to be at a comfortable 0.2x and 0.5x for FY15F and FY16F, respectively, with no other major capex required beyond Samalaju Port post its mid-2016 completion.

- Samalaju Port holds a 40-year concession from 2016 to 2056 with an extension option for 20 years. The non-LNG tariffs at the new port are expected to be higher than those of Bintulu Port.

- The group is in a transition phase as it would soon have to deal with an LNG and non-LNG tariff restructuring. This would result in a substantial reduction in LNG earnings that could be mitigated by increases in non-LNG rates. LNG remains as the single largest contributor to revenue, at 67% in the six months to 30 June 2014 (FY13: 69%).

- Management expects the reduction in LNG tariffs to be made up by increases in the non-LNG rates, reduction in lease rentals and a longer concession for Samalaju Port.

- We have incorporated this scenario in our FY16F earnings forecast (Re: our re-initiation report on 8 Oct 2014). We expect earnings growth to be flat for FY14F as BiPort would be impacted by start-up costs for Samalaju Port.

- On the stock’s illiquidity, it is possibly considering a stock split though no management or board decision has been made on the matter. We have earlier conjectured that it may possibly consider a bonus issue to partly address the issue of liquidity, and make it more affordable for retail investors.

- Maintain Hold for a dividend yield of ~4% while awaiting the outcome of the tariff restructuring.

Source: AmeSecurities