Lower LNG contribution. Bintulu's 9MFY12 earnings of RM100.6m (YTD: -10%) came in  line  with  our  estimates,  accounting  for  72%  of  our  full-year  forecast.  Note  that  the consensus numbers may not be useful at this juncture as many have yet to adjust their earnings estimates to reflect the change in accounting standards. 3Q earnings dropped 7.2%  y-o-y  on  lower  contribution  from  the  higher-margin  LNG,  with  its  vessels  calls slipping  from  111  calls  to  101  calls  in  3QFY11,  following  a  major  shutdown  of  its  LNG plant  in  July  this  year.  However,  the  lower  LNG  revenue  contribution  was  offset  by higher  revenue  from  its  general  cargo.  4Q  is  expected  to  be  a  stronger  quarter  due  to rising  LNG  demand  and  increasing  shipments  of  goods  and  construction  materials  to Samalaju.

Operational expansion drives up costs. Widening costs arising from the expansion of the  non-LNG  segment,  coupled  by  lower  revenue  contribution  from  the  higher-margin LNG, led to a decline in the group's profit margins. 3QFY12 core PBT margins dipped 3 ppts  to  33.2%.  The  higher  costs  were  attributed  to  expenses  incurred  on  third-party cargo-handling services for stevedoring and alumina oxide, maintenance expenses and charter hire of new tugboats.

Waiting  for  Samalaju.  The  hive  of  industrial  development  in  Samalaju  is  fuelling demand  for  cargo  handling  in  the  immediate  to  longer  term  for  both  Samalaju  and Bintulu ports. The two ports are expected to see cargo demand increasing by 13m-14m tonnes  and  100,000  TEUs  by  2015.  However,  the  issues  of  tariff  cuts  for  its  LNG berthing and lease payments remain unresolved, while Samalaju's concession terms are yet  to  be  finalised.  Nevertheless,  we  expect  negotiations  on  the  reduction  of  berthing tariff and lower lease rentals to be finalised by year-end.

Maintain NEUTRAL. While we like Bintulu Port's prospects, there are still uncertainties associated  with  its tariff  negotiations  and  the concession agreement  for  Samalaju  Port. Maintain NEUTRAL on Bintulu Port, with an unchanged FV  of RM7.10, based on DDM at 7.5% required return.

 Source: OSK