Down on higher costs.  Bintulu Port's net income of RM82.7m for 1HFY12 came in below our and consensus estimates. There were a few exceptional items relating to tax credits (RM12m) and gains on disposal (RM1.4m). Revenue in the 2QFY12 remained flat y-o-y as there was a 1% y-o-y decrease in its LNG division, which we attribute to the lower number of LNG vessels handled as some vessels were dry docked, However, this was cushioned by the 18% growth from its non LNG cargo division. Overall core earnings came in weaker by 18% y-o-y as the group had likely incurred larger depreciation and amortization expenses following the impact of the new IC 12 accounting standards coupled with the higher maintenance and third party costs for the handling of its bulk fertilizer cargo. A single tier dividend of 7.5 sen was proposed for 1Q (unchanged y-o-y and q-o-q).

Waiting for Samalaju. Construction work on the RM1.5bn Samalaju Port is expected to commence in January 2013. The new port will have some RM300m in port equipment that provides an initial annual handling capacity of 18m tonnes, which could be raised to 30m tonnes upon its full development. Management has yet to conclude its long-drawn-out ongoing discussions to finalize Samalaju Port's operational and ownership structure. Currently, it has yet to finalize the funding for this venture, but our sources indicate possible fund-raising through the debt market. As of now, negotiations to obtain a lower lease rental and a lower berthing tariff hike for its LNG tankers are still pending.

Maintain NEUTRAL. Following the set of weak results coupled with higher depreciation expenses moving forward, we consequently trim earnings by 8%/12%/10% respectively for FY12/FY13/FY14. However, our FV, which is based on Dividend Discount Model (at a required return of 7.5%), remains unchanged at RM7.10 as we make no changes to its dividend outlook. Though we like the stock for its stable yield of 5.3%, we are maintaining our NEUTRAL stance.

Source: OSK